Dear rss free blog,
The main reason I am
resisting the pressure to do forecasting for the year which has just begun is
that I cannot predict what the Fed is going to do when. Unlike the economics
fraternity who are setting up shadow “open market committees” in favor of tightening
now or later, or more easing, I do not have a clear picture of what the economy
is up to right now.
So I am not going to tell the
Federal Reserve what it should do. And given my agnosticism about my own
country, you can hardly expect me to pontificate on what other central banks
should do now.
Yet from the supply of money
spring trends in stocks and bonds, currencies, gold, real estate, jobs,
pensions, growth, trade. You name it.
The fund flows and DR
performance numbers help us understand the phenomenal performance of markets in
2009. They do not have much predictive value for 2010, in my opinion. I am not
a believer in trend-following or what is called “ergonomics”. But here they are
all the same.
From Cambridge
MA, EPFR, the US fund flow tracking service,
reports:
“The final week of the year
saw US Bond Funds complete 2009 having posted inflows every single week; Global
Bond Funds take in over $1 bn for the 16th straight week; and YTD
(year to date) inflows into GEM (Global Emerging Markets) Equity Funds push
over the $43 bn mark. Money Market Funds, which surrendered over $520 bn during
the course of the year, recorded their second best weekly inflow of the year:
the $28.8 bn they absorbed was bettered only by the $37 bn they took in during
the first week of 2009.
“Overall, combing weekly data
and the more comprehensive monthly numbers, emerging markets equity funds
collectively posted inflows of $70 bn while their developed markets
counterparts recorded net redemptions of $61 bn while bond funds ended the year
having taken in $292 bn.
“Investors showed a
preference for diversified exposure during the final few weeks of 2009, with
GEM Equity Funds again absorbing
the lion’s share of the fresh money that flowed into emerging markets equity
funds during the week ending Dec. 30. Although flows into Asia ex-Japan Equity
Funds, which surged going into 2Q09 as China’s story gripped investors, slowed
during the fourth quarter they ended the year having absorbed a record-setting
$25 bn, eclipsing the previous mark of $20.3 bn set in 2007. The interest in China was also reflected in the money committed
to China and dedicated BRIC
( Brazil , Russia , India
and China)
Equity Funds. In both cases the previous records were eclipsed by some margin.
“Latin
America Equity Funds look to have fallen just short of the $10.8 bn inflow mark
they set in 2007 as strong interest in Brazil
and its commodity exports was offset by less appealing stories in Mexico, Argentina,
Venezuela and, to a lesser
extent Colombia.
This fund group ended the year by posting their third consecutive week of
outflows.”
Another end-of-month report
from Citi on depositary receipts (DR) market performance wrote:
“During Dec., U.S. markets
outperformed the non-U.S. market. The Citi World ex-U.S. Liquid DR Index
increased by 1.31%, compared to a 1.78% increase in the S&P 500 Index.”
However, all Pacific Rim indexes showed better performance than the US: the Citi
Asia-Pacific ex-Japan DR up 3.85%; and the Citi Asia-Pacific Growth Economy Liquid DR
up 4.35%. These indexes include Australia.
Also up sharply was the Citi CEEMEA (central and eastern Europe, Middle East,
and Africa) DR up 5.13%.
Citi adds:
“YTD, U.S.
markets underperformed non-U.S. The year-to-date return of the Citi World
ex-U.S. Liquid DR Index was 40.13%, compared to 23.45% for the S&P 500.
During Dec., the U.S.
market outperformed the Citi LatAm Liquid DR index, the Citi EuroPac Liquid DR Index,
and the Citi World ex-U.S. Liquid DR Index.”
By region, YTD, the best performer
was Latin America, up 94.3%; CEEMEA, up 87.6%,
and Asia Pacific ex-Japan, up 67.07%. Note that the S&P rise of 23.45% is a
very suspect number.
*Here is a comment from Japan by Chris
Loew, who still does not like JAL stock:
“I
forecast increased competition to get a slice of China’s market, one of the few big
growth stories left. (China
is likely to be Japan’s
top trading partner again.)
“This assessment also
reflects general Japanese sentiment. The lesson I would take from all of this
is to find other growth stories that are not as well-known as China or the
BRICs. For example, many companies follow a ‘China + 1’ manufacturing policy, to
hedge against political instability or supply interruption. Where is the ‘+1’? Indonesia and Vietnam are
popular choices. We should be looking for non-BRIC growth stories.”
Comments Vivian: One
non-BRIC country I like is Thailand.
Note that unlike the BP staff
who set out to ruin their company’s business by staging a strike over Xmas
(blocked by a court injunction), the JAL staff docilely accepted wage and
pension cuts imposed after the govt bailout. That shows a different cultural
mindset.
A high yen exchange rate
terrifies Japanese exporters. And low interest rates feed the carry trade. But
in fact, right now, the US dollar is in the same situation as the yen: higher
against foreign currencies than trade flows require, and cheap to borrow for
whatever little games you want to play. The two currencies are in the same boat
now, but they will not move together eternally. If the yen strengthens against
the buck, it will hurt exports not just to the USA
but also to China
whose currency is linked to ours. It will also hurt the speculators using Yen
to finance deals in other currencies.
So maybe when the much
heralded US
recovery begins and the Fed reverses easing, the Japanese will take their time
to follow suit. More follows for paid subscribers:
*The worst performing share
in the Covestor yield portfolio I created early last Dec. is DWS RREEP, a real estate and strategy opportunistic
yield fund run by a team from Deutsche Bank.
The closed end fund is also in our fund model portfolio. It yields 8 cents a
month which is nice if you note the hefty discount from net asset value at which
it trades.
But therein hangs a tail. As
of Jan. 12 shareholders as of Dec. 29 last year will get a special annual
payout of $1.80 per share. This fund invests in foreign real estate, which
sounds scary but actually is relatively tame given the size and status of its
main holdings: Unibail Rodamco, the venerable
Dutch REIT, at 5%; Westfield,
the UK retail mall
developer, at 4.6%; and Sun Hung Kai Properties
of Hong Kong, at 4.4%. In the property
business, these are blue chips.
However, as 2009 drew to a
close, DRP opted to goose up its returns with a few less obvious plays. It put
22% of its money into German Euro Schatz futures, which ran out on Dec. 8. This
was good timing because since then the euro has been weak-kneed compared to the
temporarily almighty Greenback. It put 14% of its portfolio into 2-yr U.S.
Treasury futures; and another 8.2% of the loot into 10-yr US Treasury note
futures.
What the fund managers are
aiming for, and what investors fear they will fail at, is getting in enough
interest and capital gains to keep that 8 cents/mo dividend payable in
something other than return of capital. Return of capital is when a
level-payout fund gives investors back their own money. You often don’t know
this until you get your 1099 at the end of the tax year. This is always a risk
but given the way DRP is placing money, not a serious one here. DWS last week
traded at a 19% discount to NAV at $14.17. That produces a monthly yield of
6.775% not counting the special payout.
