Tom DalpiazbondsassetsMarket CommentaryBond MarketsMunicipal MarketsMike BoyleJP MorganEquity MarketseconomyLEIMatt LloydGermanyEuropeGlobal MarketsCaliforniaU.S. Economyreal estateversusChinaGDPcommoditiesConfluencejoblessinterestScott ColyerearningsGene PeroniPeroni ReportDJIAFeaturedgasolinecrudepoliticsequitiesinflationdollartradewindsyieldstreasuriesJim Costasstrikeshelf offeringone offbrad schultheisStructured ProductsAdvisor Best PracticesoilInvestment Oversight Act of 2012billRandy Peggequity marketsdouble-dipdial capitalrecessionmunicipal bondsinterest ratesTreasury bondspurchasing powercashrecencyEconomistdataREITshealthcareFDAjobsWall Street JournalCasey FrazierAamLiveBloghttp://feedburner.google.com2ab11a60-8a8a-49fb-881e-7361f6dde3e6http://www.aamlive.com/blog/201205/crazy-markets---remember-that-old-standby-municipal-bonds Tom DalpiazbondsassetsMarket CommentaryBond MarketsMunicipal MarketsSometimes it takes heightened uncertainty and increased market volatility to help investors rediscover an old friend in the investment universe.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/ykNEIRBuhLE" height="1" width="1"/>Tue, 29 May 2012 15:22:00 Z<p>Sometimes it takes heightened uncertainty and increased market volatility to help investors rediscover an old friend in the investment universe. We thought it would be useful in today&rsquo;s difficult market conditions to list a series of questions as a reminder of what municipal bonds, properly selected and managed, can do for investors. Don&rsquo;t worry; the questions we pose aren&rsquo;t tough. In fact, it should come as no surprise, given the title of this blog, that you can receive an &ldquo;A&rdquo; grade on the following quiz by answering &ldquo;municipal bonds&rdquo; to each of the questions listed below: </p> <p>&nbsp;</p> <ul> <li>What asset class allows investors to avoid federal, state, and local income taxes? Traditional tax-exempt municipal bonds are exempt from federal income taxes and can be exempt from state and local income taxes if in-state municipal bonds are purchased. </li> </ul> <p><em>&nbsp;</em></p> <ul> <li>What asset class is large, diverse, and easily customize-able? The municipal bond market has roughly $3.7 trillion in bonds outstanding, over 55,000 separate issuers of bonds, and a dozen broad sectors and security types. Municipal bonds offer a wide variety of maturity dates, coupons, call features and degrees of credit quality. This size and diversity is particularly helpful for investors when customizing their specific investment journey.</li> </ul> <p><em>&nbsp;</em></p> <ul> <li>What asset class has a safety record (from issuer default) second only to U.S. Treasury securities? According to Moody&rsquo;s, investment grade municipal bonds experienced a default rate of 0.08% from 1970 through the end of 2011. That&rsquo;s less than 1/10 of 1% (even including the very challenging environment of the past four years).</li> </ul> <p>&nbsp;</p> <ul> <li>Historically, what asset class has been unlikely to decline 200 to 300 points in a few days? We ask this question somewhat tongue-in-cheek but do so to highlight the relatively modest volatility characteristics of investment grade, intermediate maturity municipal bonds. </li> </ul> <p>&nbsp;</p> <ul> <li>What asset class has a strong possibility to increase in value as the concern over Eurozone cohesiveness intensifies? At various points in time this year, municipal bond values have increased as a flight-to-quality rally in Treasury bond prices pushed both Treasury and municipal bond yields lower. This &ldquo;fear trade&rdquo; tends to intensify in times of heightened European uncertainty.</li> </ul> <p>&nbsp;</p> <ul> <li>When does 2.75% = 4.23%? When does 2.75% = 4.55%? These formulas reveal what investors would have to find in the Treasury bond market to equal a 2.75% yield in the municipal bond market. Investors in the top 35% federal income tax bracket would have to find a 4.23%. If the top rate were to go to 39.6%, they would have to find a 4.55%. 10-year and 30-year Treasury yields are currently 1.75% and 2.84%, respectively.</li> </ul> <p>&nbsp;</p> <ul> <li>What has produced an average annual gross rate of return between 4.50% and 5.25% over long periods of time? Investment grade, intermediate maturity municipal bond portfolio managers as a group have demonstrated admirable consistency. Examine the total return results of this group over different time periods (whether for seven years, 10 years, or 15 years, or longer) and you will find average annual gross rates of return between 4.50% and 5.25% and net returns of 4.20% and 4.95%.</li> </ul> <p><em>&nbsp;</em></p> <p>As you might have guessed by now, we believe in the relevance and benefits of municipal bonds for many investors. Of course, the future is uncertain and no guarantees can be given. Municipal bonds are not the cure for the common cold or even the answer to every investment question, but they <em>have</em> exhibited admirable resiliency and provided meaningful benefits through challenging investment environments. Confusing markets? Perhaps our stack of simple, pointed questions piled high in one place can help you revisit an old friend in the investment universe: municipal bonds.</p> <p>&nbsp;</p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>~/blog/about/disclosures.</em></a><em> For additional commentary or financial resources, please visit </em><a href="https://www.aamlive.com/blog"><em>www.aamlive.com</em></a> </p> <p>&nbsp;</p>c7fae507-5a94-495d-a4dd-3c68e14a2b60http://www.aamlive.com/blog/201205/market-gut-check-time-again Mike BoyleJP MorganMarket CommentaryEquity MarketsFrom 4/2/12 through 5/18/12 the S&P 500 lost 8.73%. This marks the eighteenth time since 3/9/09 (the beginning of the current bull market) that the S&P 500 has corrected by at least 3% and the eighth time that the S&P 500 has corrected by at least 7%.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/24d5nF7fckg" height="1" width="1"/>Tue, 22 May 2012 18:59:46 Z<p>From 4/2/12 through 5/18/12 the S&amp;P 500 lost 8.73%. This marks the18th time since 3/9/09 (the beginning of the current bull market) that the S&amp;P 500 has corrected by at least 3% and the eighth time that the S&amp;P 500 has corrected by at least 7%. In addition, our research of the last 50 years shows 3% pullbacks occur on average four times a year. So, clearly pullbacks are commonplace during a normal bull market; however, every time they occur they still set investor emotions on edge and test their resolve. At times like this we like to try and decipher what drove the selloff and try to resolve if we think it is just a normal correction or the beginning of a longer trend down and possibly the start of a new bear market.</p> <p>&nbsp;</p> <p>In late March, we highlighted that the equity markets appeared to be due for a correction and consolidation as the run from the 10/3/11 bottom seemed unsustainable and the equity markets appeared overbought. April then began with a mild selloff (-4.26%) but then it traded back towards its near-term high in late April and early May. However, as May progressed investor appetites soured and the equity markets turned south again driven by seasonality fears (Sell in May&hellip;), banking concerns (JP Morgan&rsquo;s trading loss) and worries over the viability of the Eurozone due to the recent elections in France and Greece. On their own, any one of these factors was enough to push the market lower and together they drove a pretty strong selloff of 7.87% for the S&amp;P 500 (5/1/12 &ndash; 5/18/12). Yet it wasn&rsquo;t all bad news, but the good news on corporate earnings and U.S. economic strength was just that, good news, and the markets were in need of great news to help stem the short-term tide.</p> <p>&nbsp;</p> <p>Some of this good news includes an earnings season that is, statistically, better than last quarter. In addition, EPS (Earnings Per Share) for the S&amp;P 500 has risen over 10% year-over-year and is expected to grow about the same over the next year. On the value side the P/E (Price per Earnings) for the S&amp;P 500 now sits at 13.29 well below its value of 15.32 from a year ago and its 60-year average of 16.4. Other good news includes reports of home inventories shrinking over 20% year-over-year, existing home sales rising and vehicle sales hitting levels last seen four years ago. This reinforces our thesis that the U.S. economy is continuing to mend (albeit slowly) and should continue to do so and should be helped along the way by the positive feedback cycles we are beginning to see from a number of industries including housing and autos. </p> <p>&nbsp;</p> <p>Will there be more bumps in the road and more gut check moments? Absolutely! However, we still like the outlook for equities and are standing by our end-of-year target of 1430 for the S&amp;P 500. We would continue to recommend investors take advantage of the dips as they come (disciplined dollar cost averaging if they can) and would favor our themes of investing in companies and strategies that offer quality dividends, quality balance sheets and quality (above trend) growth.</p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="https://www.aamlive.com/legal/commentary-disclosures"><em>~/blog/about/disclosures.</em></a><em> For additional commentary or financial resources, please visit </em><a href="https://www.aamlive.com/blog"><em>www.aamlive.com</em></a> </p> <p>&nbsp;</p>4e4fd1db-c117-4420-9b39-74c4cfe567c7http://www.aamlive.com/blog/201205/the-market-and-the-e-formula economyLEIMatt LloydGermanyEuropeMarket CommentaryGlobal MarketsEurope, the Economy and Emotions have risen once again to take center stage in the investment theatre. We continue to get whipsawed daily on the future of Greece and its 2% of the Eurozone’s GDP potentially being removed from the Eurozone.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/XFcPeazC93k" height="1" width="1"/>Tue, 22 May 2012 17:58:34 Z<p>Europe, the Economy and Emotions have risen once again to take center stage in the investment theatre. We continue to get whipsawed daily on the future of Greece and its 2% of the Eurozone&rsquo;s GDP potentially being removed from the Eurozone. Today, German&rsquo;s Finance Minister assured the market place that everything will be done to maintain Greece&rsquo;s seat at the table. If they maintain their membership, it might be a high chair where Greece may have to supply its own bib and sippy cup. </p> <p>Ultimately, there is still a large vested interest in the larger Eurozone countries in maintaining the more fiscally challenged countries in an attempt to curb the Euro. With no labor cost advantage, the main benefit has more to do with productivity of the manufacturers; thusly the Euro is a major harbinger for the entire Eurozone. In the end, we would not expect Germany to be &ldquo;drachma wise, and Euro foolish.&rdquo;</p> <p>The economy has seen some broader metrics measuring in a more slowing manner. One of the more broad measures is the Leading Economic Indicator Index (LEI)&nbsp;and the comparison of the coincident, lagging and leading that has steadily declined. Due to its broad components, this was to be expected. Over the last 25 years, the LEI year-over-year change has averaged 1.9%, exactly where it stands now. </p> <p>Taking a bit more broad view, consider the LEI Total Index measuring leading indicators over the last 30 years with a 24-month moving average.</p> <p>&nbsp;</p> <p><img src="http://www.aamlive.com/images/blog/lei-total-leading-index.jpg?sfvrsn=2" alt="LEI Total Leading Index" title="LEI Total Leading Index" /></p> <p>&nbsp;</p> <p>Growth in the economy is still confirmed from the chart as it still above the two-year moving average. An interesting component of this chart is what has happened with S&amp;P 500 returns. Since 1982, the average return in the S&amp;P 500 was 8.80% in price annually and 11.65% in total return. The average return when the moving average was below the LEI total number, stood at 11.43% in price return and 14.27%. This was 30% more in price return and 22% in total return. The summer may continue to be a bit choppy, as we have shown with continuing claims last week and the Leading Economic Indicator index this week. </p> <p>Emotions, as we&rsquo;ve discussed, often override the fundamentals of investments. We&rsquo;ve seen this in the tech bubble, housing bubble and now the paranoia bubble. We often extrapolate a recent event to future events. With such losses of confidence in so many aspects of business, economy and government, it is not a surprise so many expect another credit event like 2008. Quite a few more are calling for more severe consequences, which is a direct result of the paranoia bubble. </p> <p>The Three E&rsquo;s (Europe, the Economy &amp; Emotions) are a scary combination; however, it also leads to another E. The opportunity that arises from the totality of the negative perceptions may potentially be described as Exciting for those willing to look a bit past the immediate challenges.</p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="https://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="https://www.aamlive.com/legal/commentary-disclosures"><em>~/blog/about/disclosures.</em></a><em> For additional commentary or financial resources, please visit </em><a href="https://www.aamlive.com/blog"><em>www.aamlive.com</em></a> </p>f6caf1f3-93cb-4fe2-870f-7b010148aea4http://www.aamlive.com/blog/201205/california-budget-woes-deja-vu CaliforniaMarket CommentaryU.S. EconomyMunicipal MarketsIt’s that time of the year again for the California Legislature to agree on a balanced budget. California is routinely in the headlines or mainstream media outlets.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/PbnPXeXPJYs" height="1" width="1"/>Fri, 18 May 2012 18:03:07 Z<p>It&rsquo;s that time of the year again for the California Legislature to agree on a balanced budget. California is routinely in the headlines or mainstream media outlets. Several articles have surfaced of late painting a worsening budget picture for the state. The annual &ldquo;May Revision&rdquo; was released on May 3 and it now projects the fiscal 2013 budget deficit to be $15.7 billion, or 16% of the projected general fund budget. In January 2012, Governor Brown projected the deficit to be more manageable at $9.2 billion. However, the May Revision attributes three primary factors to the widening ($6.5 billion) of the budget shortfall this upcoming fiscal year: </p> <ol> <li>Aggressive revenue forecasting; under-performing revenue collections the current fiscal year have led the Governor to revise forecasts to account for a more moderate pace of economic growth.</li> <li>Proposition 98 spending mandates for K-14 education; funding formula largely tied to year-over-year general fund revenues, fiscal 2013 revenues are projected to be 5.6 percent higher.</li> <li>Inability to implement social service and health care adjustments due to Federal and State Court rejection.</li> </ol> <p>Let&rsquo;s be reminded that this is not new to California. In fact, the state has been through this scenario several times before. The economic downturn has had a significant impact on budgetary operations. Like many other states, California has experienced broad revenue declines and rising expenditure requirements which have led to very difficult decisions. In spite of this, the state has successfully closed over $100 billion in budget imbalances over the past four years. </p> <p>The highly politicized culture in California coupled with public policy initiatives limit the State&rsquo;s flexibility and historically has led to contentious debates in the State Legislature. Prior to fiscal 2012, the State Constitution required a two-thirds majority vote to enact a budget. Broad bi-partisan support was necessary to attain budgetary consensus under the mandate. More recently, however, Proposition 25 was passed which now only requires a simple majority to enact a budget. Nonetheless, State fiscal policy remains a challenge as a two-thirds majority vote is needed to pass most tax measures; therefore, a focus on adjusting expenditures has been the brunt of the budgetary process. </p> <p>In the past few years, the state has made severe spending cuts. For example, the state has cut programs and services as well as reduced aid to local governmental entities and a paring of the workforce. The state also relied on one-shot maneuvers such as the use of reserves or intra-fund borrowing to help bridge gaps. To a lesser extent, the state relied on federal stimulus to enhance revenue and pension reform measures. The proposed budget for fiscal 2013 includes a combination of revenue enhancers (roughly 35%), expenditure cuts (roughly 50%) and intra-fund borrowing and deferment (roughly 15%). Inclusion of more recurring measures is a credit positive since the objective of achieving a structurally balanced budget in the coming years is more realistic. Past budget maneuvers and gimmicks were viewed as short-term and temporary, placing pressure on future budgetary cycles. </p> <p>The linchpin of the fiscal 2013 budget is a November ballot initiative that calls for a temporary increase to income and sales taxes ($8.5 billion in projected revenue). Expenditure cuts ($8.3 billion) would affect social service programs, higher education and health care for the poor. Additionally, a 4-day work week is being proposed which equates to a 5% pay reduction for municipal employees. The budget has been crafted to build a budget reserve fund in excess of $1 billion, a small cushion to absorb revenue and expenditure volatility. If the tax initiative is not passed by voters in November, an automatic trigger will cut nearly $6 billion ($5.5 billion from public education) of funding midway through the fiscal year. It will be critical for the State Legislature to agree on a credible and structurally sound budget for the upcoming fiscal year. Protracted budget deliberations and an untimely budget adoption could pressure the State&rsquo;s liquidity position. In past budget years, the state has had to access the capital markets for cash flow borrowings, negotiate bridge loans and even issued IOUs in 2009 to preserve cash [for higher priority payments including debt obligations]. </p> <p>Despite heightened headline risk in the state, California is a sovereign entity with varying degrees of budgetary and financial flexibility. California is a very large and economically diversified economy with high wealth levels and above average socioeconomic and demographic indicators. With a population of over 40 million and state GDP of nearly $2 trillion, the state&rsquo;s economic activity places it among the largest economies in the world. Public policy and voter initiatives could impede the adoption of timely budgets; however, the state has a constitutional mandate to balance its budget annually and I would expect the state to reach consensus. </p> <p><em>Constitutional and Statutory Protections Could Provide Bondholder Comfort</em></p> <p>California&rsquo;s general obligations are currently rated A1/A-/A- and was placed on positive outlook by S&amp;P. Rated among the lowest in the nation, the state&rsquo;s general obligations and appropriation-backed debt does experience credit volatility rather frequently, especially during the budgetary process. Notwithstanding challenging economic and fiscal conditions, California continues to show the ability and willingness to support their debt obligations. The following are factors that support the state&rsquo;s commitment to full and timely debt service payments: </p> <ul> <li>The California State Constitution prioritizes general obligation debt service over other state expenditure requirements, with the exception of public education.</li> <li>Under the California State resolution, &ldquo;it is an event of default of the state to fail to pay or to fail to cause to be paid, when due, or to declare a moratorium on the payment of, or to repudiate, any bond.&rdquo; </li> <li>The California Bond Acts provides a continuing appropriation from the General Fund of the amount required annually to meet payment of debt service on time and in full. A continuing appropriation provision precludes the state from abating general obligation debt service if a budget is in place or not. </li> <li>Appropriation-backed debt would be supported by practical implications. Although the priority of payments places appropriation-backed debt behind public education, general obligations and wages, the financing structure is widely used and is integral to the state&rsquo;s capital formation. Almost all appropriation-backed debt is issued by the California Public Works Board under a lease agreement. The master lease indenture provides a covenant to budget and appropriate sufficient funds. Failure to appropriate would cause an event of default and likely impair the state&rsquo;s ability to access the capital market. Further, state law requires a continuing appropriation of funds for lease rental payments. During periods of time where the financed assets are unusable (defined under abatement clauses), several insurance contracts purchased by the board will make payments to bondholders. Additionally, the board has a master indenture common reserve fund that could be replenished from any legally available financial resources.</li> </ul> <p><em>&nbsp;</em></p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="https://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="https://www.aamlive.com/legal/commentary-disclosures"><em>~/blog/about/disclosures.</em></a><em> For additional commentary or financial resources, please visit </em><a href="https://www.aamlive.com/blog"><em>www.aamlive.com</em></a> </p>d5ce217b-dc6a-4212-ad39-d76d8bb5fd23http://www.aamlive.com/blog/201205/the-case-for-core-real-estate real estateversusMarket CommentaryU.S. EconomyCommercial real estate is an asset class that includes many different strategies and approaches. Investors segment real estate investments into a few categories.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/Oy8Y2d6xDs0" height="1" width="1"/>Thu, 17 May 2012 18:55:33 Z<p><strong>By Casey Frazier, CFA, Chief Investment Officer </strong>- <a href="http://versuscapital.com/">Versus Capital Advisors, LLC</a></p> <p><a href="http://versuscapital.com/"><br /> </a></p> <p>Commercial real estate is an asset class that includes many different strategies and approaches. Investors segment real estate investments into a few categories. This segmentation is done by several key factors including income profile, leverage, operational risk and potential returns. The most important segmentation is core versus non-core, or properties with stable income versus properties that have unstable or no income. In addition to stable income streams, core real estate typically has low leverage, limited operational risk, and moderate and more predictable returns.&nbsp; Non-core real estate is often characterized by higher leverage, more operational risk, and higher potential returns.</p> <p>&nbsp;</p> <p><strong><em>Core Real Estate:</em></strong> </p> <p>Many investors break the core segment category into two groups: core and core-plus.&nbsp; Core real estate generally targets high quality real estate assets, minimal levels of leverage (0-30%), a stable tenant base, limited leasing risk, conservative yield-focused return targets, and a modest expectation for capital appreciation. The core-plus style includes the same assets as core, but seeks to use higher leverage of typically 30%- 50% in an effort to boost returns beyond those achieved through a core strategy. In addition, core-plus investing can also target smaller assets and smaller markets provided they are well located, well leased, without near-term rollover exposure, stable, and a traditional property type. Like core, core-plus emphasizes a substantial share of expected total return to be derived from income or yield.</p> <p>&nbsp;</p> <p>Core properties are the real estate equivalent of core fixed income because of their income characteristics and their ability to preserve capital. Well leased core assets in major markets have historically held their value in down real estate cycles. Because of its stable return and capital preservation characteristics, a significant portion of institutional real estate allocations, especially in pension funds, are in core portfolios [1]. The income tends to exceed actual core fixed income over time, which is appropriate since these portfolios do have a moderate amount of real estate operating or equity risk.&nbsp; (see figure 1)</p> <p>&nbsp;</p> <p><img title="Income Returns" alt="Income Returns" src="http://www.aamlive.com/images/blog/income-returns36122AA9815E041670D944C0.jpg?sfvrsn=2" /></p> <blockquote> <p>*Past Performance doesn&rsquo;t guarantee future performance.</p> <p>&nbsp;</p> </blockquote> <p><em>Source: Barclays Capital and National Council of Real Estate Investment Fiduciaries (&ldquo;NCREIF&rdquo;).</em></p> <p><em><br /> </em></p> <blockquote> </blockquote> <p>Figure 1 compares the income return of&nbsp; NCREIF Fund Index-Open End Diversified Core Equity (&ldquo;<strong>NFI-ODCE</strong>&rdquo;),&nbsp; an index of investment returns of open-end commingled funds pursuing a core investment strategy (the proxy for private core real estate funds), and the Barclays Aggregate Bond Index (the proxy for the broad domestic fixed income markets).</p> <p><em><br /> </em> </p> <p><strong><em>Non-Core Real Estate</em></strong> </p> <p>Non-core real estate covers everything that does not fit in the core segment. Typically non-core assets have limited to no income or unpredictable income. Non-core includes a wide range of situations including: properties with a meaningful vacancy; properties in need of renovation; properties in need of repositioning; properties in need of redevelopment; or, new development properties. Non-core properties are often broken into two styles: value-added or opportunistic. The value-added style typically focuses on more aggressive active asset management and often employs more leverage. It generally involves buying a property, improving it in some way, and selling it at an opportunistic time for a gain. The opportunistic approach is normally viewed as the high end of the risk/return spectrum and includes investing in emerging markets, development projects, distressed assets and nonperforming loans. Non-core properties are the real estate equivalent of equity investing because of their appreciation focus and the higher operating risk. As a result, there can be a large return disparity between the best performing non-core real estate and the worst performing non-core real estate.&nbsp; </p> <p>&nbsp;</p> <p><strong>Current Individual Investor Objectives&nbsp; </strong></p> <p>In our discussions with investment advisors and individual investors, we noted they were looking for the following attributes in their search for investments in the current market environment:</p> <p>&nbsp;</p> <blockquote> <p><strong>Income-</strong> With interest rates at historic lows, investors are looking for investments that generate a competitive yield.</p> </blockquote> <blockquote> <p><strong>Lower Volatility-</strong> Since the global financial crisis, the risk appetite for investors has changed and they are looking for diversification in their portfolios outside of the traditional stock and bond markets.</p> </blockquote> <blockquote> <p><strong>Inflation Protection-</strong> Investors are concerned about future inflation as budget deficits continue to expand across the globe along with significant expansions in monetary policy.</p> </blockquote> <blockquote> <p><strong>Liquidity-</strong> Significant volatility in the equity market has investors concerned with being able to access their capital.</p> </blockquote> <blockquote> <p><strong>Time horizon-</strong> As the baby boom generation begins to retire, most of the investing public has a mid- to long-term time horizon with a change in focus from capital accumulation toward de-accumulation or the spending phase.</p> <p>&nbsp;</p> </blockquote> <p>Given this backdrop, we believe that deciding where to allocate within the real estate sector is critical.&nbsp; Based on the needs and objectives of the &ldquo;average&rdquo; investor described above, we believe that the optimal real estate allocation for individual investors should be a significant allocation to core real estate.&nbsp;&nbsp; </p> <p>&nbsp;</p> <p>&nbsp;[1] IREI Tax-Exempt Real Estate 2009 Survey, Casey Quirk Analysis</p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>www.aamlive.com/blog/about/disclosures</em></a><em>. For additional commentary or financial resources, please visit </em><a href="https://www.aamlive.com/blog"><em>www.aamlive.com</em></a> </p> <p><br clear="all" /> <em>The information contained herein is written by Versus Capital Advisors, LLC and is believed to be reliable. The information is not warranted as to completeness and accuracy and is subject to change without notice. The foregoing has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security.</em></p> <p><em>Advisors Asset Management, Inc. (AAM) and Versus Capital Advisors, LLC are not affiliated and the views expressed in this commentary are not necessarily that of AAM. Versus Capital Advisors, LLC is the investment adviser of the Versus Capital Multi-Manager Real Estate Income Fund. AAM is the sub-distributor for the Fund.</em> </p>c407b344-4909-4aa4-9cd6-f1a7a2492d36http://www.aamlive.com/blog/201205/commodities-cyclical-bear-in-the-long-term-bull-market ChinaGDPcommoditiesEuropeConfluenceGlobal MarketsMarket CommentaryThe Commodity Research Bureau (CRB) index of commodity prices is down another 3.6% over the past month after falling 5% the previous month. Oil prices, which had held their gains earlier this year, have succumbed to worries about global growth.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/DjonqRmBIUg" height="1" width="1"/>Wed, 16 May 2012 20:35:46 Z<p>Over the past month, commodity prices have remained under pressure. The Commodity Research Bureau (CRB) index of commodity prices is down another 3.6% over the past month after falling 5% the previous month. Oil prices, which had held their gains earlier this year, have succumbed to worries about global growth. In addition, negotiations with Iran have gone reasonably well, easing fears of a geopolitical event that could send prices soaring. It is important to note that talks with Iran always run the risk of &ldquo;snatching defeat from the jaws of victory&rdquo; so there is still serious risk of military action this year. But, for now, prices have eased on hopes for peace. </p> <p>&nbsp;</p> <p>Chinese worries remain elevated. The nation&rsquo;s economic growth, though still very positive (GDP is over 8%), is clearly slowing. There are growing calls for the central bank to ease credit but, so far, officials have not taken significant steps in this direction. Most likely, the government is trying to deflate a housing bubble and does not want to ease too quickly and risk reigniting the bubble. Thus, it appears that Chinese officials, at least for now, are comfortable with a modestly weaker economy. Since China is a major consumer of commodities, slowing growth is a negative for prices.</p> <p>&nbsp;</p> <p>Will Chinese policy change direction anytime soon? History would suggest it will. For the past three decades, Chinese officials have been supporting strong growth at all costs. However, we may be near a policy inflection point; China is grappling with concerns about the environment and income differences and is struggling to make adjustments to its development model. We doubt China will risk a full-blown recession but will be content with 7% GDP growth. </p> <p>&nbsp;</p> <p>The other problem is Europe. After a few calm months, voter reaction to austerity has been clear&mdash;Europeans have had their fill. Such a reaction isn&rsquo;t a big surprise; voters rarely like higher interest rates, tax hikes and spending cuts. However, if currency turmoil increases, it may lead to a much stronger dollar, which has traditionally been bearish for commodity prices. It is important to note, however, that it isn&rsquo;t really the dollar that has strengthened, but the euro which has weakened. &nbsp;It is highly doubtful that the United States will allow Europe to recover on the back of U.S. consumers. Ultimately, we still believe we are on course for further actions to undermine fiat currencies. Such policies will be commodity bullish long term. </p> <p>&nbsp;</p> <p>Ultimately, the actions by the central banks undermine investor confidence in their currencies and this factor is supportive to commodity prices. Over time, we expect commodities to become the definitive store of value.</p> <p>&nbsp;</p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>www.aamlive.com/blog/about/disclosures</em></a><em>. For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/blog"><em>www.aamlive.com</em></a></p> <p><a href="https://www.aamlive.com/%7E/blog"><em><br /> </em></a></p> <p><em>The information contained herein is obtained from Confluence Investment Management LLC and believed to be reliable. The information is not warranted as to completeness and accuracy and is subject to change without notice. The foregoing has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security.</em> </p> <p>&nbsp;</p> <p><em>Advisors Asset Management, Inc. (AAM) and Confluence Investment Management LLC are not affiliated and the views expressed in this commentary are not necessarily that of AAM.</em> </p> <p>&nbsp;</p> <p><em>Confluence Investment Management LLC is the Portfolio Consultant to the Confluence Hard Assets Unit Investment Trust. The Portfolio Consultant is not an affiliate of Advisors Asset Management, Inc. (AAM), the sponsor of this trust. </em> </p>073af34e-847f-4c1d-85e9-1decb26b124dhttp://www.aamlive.com/blog/201205/what-the-individual-and-professional-investors-are-doing Matt LloydjoblessinterestScott ColyerearningsMarket CommentaryU.S. EconomyThe tug of war between individual investors and investment professionals is seeing two distinct paths. According to reports from the Investment Company Institute, equity outflows of mutual funds in April were at $18 billion, the most in nearly 28 years.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/CVGtzg5FkjY" height="1" width="1"/>Mon, 14 May 2012 19:02:09 Z<p>The tug of war between individual investors and investment professionals is seeing two distinct paths. According to reports from the Investment Company Institute, equity outflows of mutual funds in April were at $18 billion, the most in nearly 28 years. On the other side, according to Bloomberg, the Commodity Futures Trading Commission showed the drastic reduction of bearishness by professional speculators as net short contracts have dropped over 80% since the high set last September. The question is, &ldquo;Who will be right and when?&rdquo;</p> <p>&nbsp;</p> <p>The answer nowadays, when looking at black and white questions, is typically they both are; it just depends on your time frame. Just as we pointed out the short-term direction of crude was signaling a significant move a couple of weeks ago, the methodology is the same. Where does the preponderance of the information lead us as we attempt to &ldquo;orbit the hairball&rdquo; of market minutia?</p> <p>&nbsp;</p> <p>Earnings came in strong again in the first quarter and cash continued to pile up. We continue to see this cash being used for increased dividends, stock buybacks, mergers and acquisitions as well as productivity upgrades in the form of technology spending. Though some could argue the short term may see a bit more of the short interest rising with the constant headlines coming from Europe, the positive is that expectations for earnings in general for 2012 were benign at best. The same could be said for the economy in 2012.</p> <p>&nbsp;</p> <p>As AAM&rsquo;s CEO/CIO Scott Colyer pointed out last week, the consumer credit number has a tremendous influence on what we discussed several weeks ago, <strong><a href="http://www.aamlive.com/blog/201203/the-economic-backstop-the-consumer">The Economic Backstop: The Consumer</a></strong>. The consumer (assuming 70% of the domestic GDP) is also the equivalent of over 17% of the global GDP. This metric is off of its highs set a few years ago when it was north of 18%, but still a significant portion of orders for our emerging market trading partners.</p> <p>&nbsp;</p> <p>One interesting economic dynamic is the progressing of the continuing jobless claims report. Consider the movement of the continuing jobless claims with the 30-year average.</p> <p>&nbsp;</p> <p><img width="654" height="327" src="http://www.aamlive.com/images/blog/u.s.-continuing-jobless-claims.jpg?sfvrsn=2" alt="U.S. Continuing Jobless Claims" title="U.S. Continuing Jobless Claims" style="margin-bottom: 10px;" /></p> <p> </p> <p>&nbsp;</p> <p>As we are fast approaching our long-term average, it is important to discern what this might mean for equity investors. When the continuing jobless claims were above the long-term average (signaling a slowing economy by means of a higher unemployment rate), the S&amp;P 500 returned an annual total return of 7.42% (including dividends). When the economy was recovering and growing as shown by the continuing jobless claims number below the long-term average, the S&amp;P 500 returned 57% more annually at an average of 11.67%. Though this crossover may be a few months away, the trend is progressing steadily.</p> <p>&nbsp;</p> <p>Another important note is how long the trend has lasted when the number peaked to its ultimate bottom. The average length of time from peak to trough is 76 months, or just over 6 years. Considering the high set in May of 2009, if the average period were to hold true, the bottom might appear at the end of 2015, or almost three and a half years from now. </p> <p>&nbsp;</p> <p>So although the short term may hold some volatility, the long-term trends continue to favor bullishness. The bears may have their moments in the short term; eventually they hibernate in light of what we foresee for the economy and markets over the years ahead. </p> <p>&nbsp;</p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>~/blog/about/disclosures.</em></a><em> For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/blog"><em>www.aamlive.com</em></a> </p>a2d313e7-6101-41c4-b6ef-b51db35fc36fhttp://www.aamlive.com/blog/201205/no-mayday-in-may---peroni-report-may-2012 Gene PeroniPeroni ReportDJIAFeaturedMarket CommentaryEquity MarketsSuccumbing to the temptation to address the ‘Sell in May; Go Away’ quandary facing investors this month, I will present my thoughts on this well-advertised Wall Street phrase.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/CZ9yEa3tqsM" height="1" width="1"/>Fri, 11 May 2012 19:34:30 Z<p><strong>DJIA: 12932.09</strong></p> <p>&nbsp;</p> <p>Succumbing to the temptation to address the &lsquo;Sell in May; Go Away&rsquo; quandary facing investors this month, I will present my thoughts on this well-advertised Wall Street phrase. I preface my opinions on this subject by first stating that &lsquo;Sell in May&rsquo; is a very general statement that may gloss over the market&rsquo;s underlying leadership characteristics, nuances and stock-picking opportunities. I would also caution that the context of &lsquo;Sell in May&rsquo; raises the notion of required action needed short term when, in fact, such action could be contrary to an established and ongoing basic stock market trend. Designing a portfolio strategy around any adage assuredly has its pitfalls. The following are reasons I would be more inclined to be buying rather than selling with the DJIA about 3% below its recent peak levels.</p> <p>&nbsp;</p> <p>First, there is no guesswork about the outlook for interest rates. Fed Chairman Ben Bernanke deserves accolades for his policy transparency. Bernanke has sought to keep a clear channel of communication open with the investment community by stating regularly that interest rates should remain low well into 2014 and that when the central bank considers raising rates, adequate fair warning will be transmitted. From a monetary perspective it does not get much better for the stock market &ndash; a critical uncertainty has been virtually eliminated and policy has been explicitly communicated with consistency and regularity. To be sure, the Fed&rsquo;s good intentions would have little benefit if corporate earnings were not responding positively at this juncture. In fact, indications thus far are for first quarter earnings to beat Wall St. analysts&rsquo; expectations by a similar rate to that of recent quarters. More importantly, the accompanying corporate outlooks are reflecting more optimism.</p> <p>&nbsp;</p> <p>Second, the longer-term price architecture is bullish among many stocks representing broad and diverse categories including auto parts, aerospace/defense, consumer staples, health care, information technology, industrials and railroads. The formations are historically indicative of durability, elasticity and longevity and are not unique to, or concentrated in, any one industry sector. These patterns do not assure invincible trends, but they do offer above average resiliency and above-the-mean recovery potential once a general market correction runs its course. So, while May could prove a corrective month, I am skeptical that it will usher in a prolonged downturn. The bullish formations cited also reflect the good self-policing of temporary overbought conditions in individual stocks that has characterized this market for years. There have been regular rotational consolidations among the leading sectors that has curbed speculation and maintained healthy levels of caution and hesitation from a contrarian&rsquo;s standpoint.</p> <p>&nbsp;</p> <p>Third, net money flow patterns which serve as an indication of accumulation or distribution remain generally positive. Apart from this formula-driven study, the DJIA&rsquo;s recent pattern of ascending intraday lows serves as an illustration of a heightened tendency among investors to buy on relatively brief and shallow market dips. Since producing consecutive intraday lows near DJIA 12,700 on April 10^th and 11^th, the Industrials have stair-cased to a multi-year intra-session peak above 13,300 before pulling back to its current level. These motions basically comply with an ascending channel dating back to the post-October lows of last year. Considering the DJIA&rsquo;s near-term configuration, support should be in proximity to 12,800. With the 200-day moving average considerably lower at 12,200, there is a technical &lsquo;cushion&rsquo; that could allow the market to absorb some unexpected negative news without altering the basic uptrend.</p> <p>&nbsp;</p> <p>Although the epicenter of investors&rsquo; fear is Europe, the market could turn higher abruptly if positive news emerges. For instance, if the Fed opts for QE3 in June as some economists predict, a re-test of the recent highs could occur. Absent of &lsquo;fresh&rsquo; news, I believe the market will remain range-bound (+/- 2%, or thereabout) of DJIA 13,000. &nbsp;The CBOE Volatility Index (VIX) has been in a short-term base building formation that could present near-term risk potential for equities. Support in the VIX resides at 17, but its intermediate resistance is near 25. With this in mind, May might very well be a corrective period for stocks, but I anticipate this would lead to a significant oversold condition sufficient to spawn a summer rally. I believe the best opportunities will be in earnings growth areas, running the gambit from consumer staples to technology. I expect financials to lag short-term because of their strong first quarter gains and their proximity to significant technical resistance. </p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>~/blog/about/disclosures.</em></a><em> For additional commentary or financial resources, please visit </em><a href="https://www.aamlive.com/blog"><em>www.aamlive.com</em></a> </p>84b79e68-a327-445f-a824-014dd7c1b16chttp://www.aamlive.com/blog/201205/charting-crude gasolinecrudeMatt LloydpoliticsMarket CommentaryU.S. EconomyCrude and gasoline have been in the press a great deal recently. Headlines touting the potential recession being exacerbated by high prices of crude and gasoline have also been met with statements about the need to regulate the speculators who are the ones to blame.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/2Gh_KVWKiHk" height="1" width="1"/>Fri, 11 May 2012 14:24:17 Z<p>Crude and gasoline have been in the press a great deal recently. Headlines touting the potential recession being exacerbated by high prices of crude and gasoline have also been met with statements about the need to regulate the speculators who are the ones to blame. We have mentioned our view on this several times over the last few weeks. Last week we mentioned a chart pattern corresponding with a negative backdrop that could push crude down in the short run. Consider the move in the Crude over the last five days.</p> <p> </p> <img width="683" height="341" src="http://www.aamlive.com/images/blog/crude-year-to-dateA7EDC4825C13.jpg?sfvrsn=2" alt="Crude: Year to Date" title="Crude: Year to Date" style="margin-bottom: 20px; float: left;" /> <p> Wednesday, a very profound headline came out of China that the price of its regulated gasoline and diesel prices were going to be reduced by about 3%. Though this may be an announcement that ultimately stabilizes crude prices due to the sheer size of its economy, in the short term it could weigh down the price of crude.</p> <p>Domestically, we have seen a similar move in gasoline, though the spread between crude and gasoline are still significantly wider. This leaves us with yet another reversion to the mean as gasoline appears to want to drop while crude may drop slightly or stabilize.</p> <p>&nbsp;</p> <p><img width="683" height="341" src="http://www.aamlive.com/images/blog/crude-and-gasoline.jpg?sfvrsn=2" alt="Crude and Gasoline" title="Crude and Gasoline" style="margin-bottom: 20px; float: left;" /></p> <p>From this chart, gasoline appears high relative to the overall trend of crude, which brings us to the political aspect issue.</p> <p>&nbsp;</p> <p><img width="683" height="341" src="http://www.aamlive.com/images/blog/political-pressure-from-pump-crude-and-gasoline.jpg?sfvrsn=2" alt="Political Pressure from Pump: Crude and Gasoline" title="Political Pressure from Pump: Crude and Gasoline" style="margin-bottom: 20px; float: left;" /> </p> <p>Whether fair or not, the price of crude has risen 129% since January 2009 and gasoline has risen 101%. This will become a hot topic as the election comes closer. Though crude and gasoline aren&rsquo;t necessarily comparing apples to apples, there has been a decent correlation over the last eight years. As such, there are far more factors that have coincided with the run-up in crude and gasoline, least of which is the global economic recovery. Though we would agree it is a stealth such rebound, we also recognize many aren&rsquo;t sure the recovery has truly taken place. Thus the blame game looks to be ratcheted up in short order. It reminds us of the anonymous quote: &ldquo;Expecting the world to be fair to you because you are a good person is like expecting the bull not to charge because you are a vegetarian.&rdquo;</p> <p>&nbsp;<br /> <em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>www.aamlive.com/blog/about/disclosures.</em></a><em> For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/blog"><em>www.aamlive.com</em></a></p>9b101459-226a-474c-b85e-ce4413b628behttp://www.aamlive.com/blog/201205/the-current-market-short-term-discounts-could-equal-long-term-gains equitiesMatt LloydGDPMarket CommentaryEquity MarketsAs we embark on the anticipated “sell in May and go away” mantra, it might be of interest to look at where some of the value metrics lie currently.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/W8vDMj-nJXA" height="1" width="1"/>Mon, 07 May 2012 19:57:13 Z<p>As we embark on the anticipated &ldquo;sell in May and go away&rdquo; mantra, it might be of interest to look at where some of the value metrics lie currently. We see many of the same concerns that prompted the sell-offs the last couple of years at roughly this time; least of which is the percolating European issues and the price of gasoline. The more important components, in our eyes, are the events surrounding China with regard to its &ldquo;stagnant&rdquo; GDP running at a little above 8%, the November U.S. political transition and the intriguing diplomatic events that occurred recently. </p> <p>&nbsp;</p> <p>If you recall from our <a href="http://www.aamlive.com/blog/201201/the-strategic-times-year-in-review-looking-ahead">Strategic Times: Year in Review &amp; Looking Ahead</a> piece, the following metrics may surprise you with the run up in the equity markets, specifically the S&amp;P 500.</p> <p>&nbsp;</p> <p> </p> <table width="699" cellspacing="2" cellpadding="2" border="2"> <tbody> <tr> <td valign="top" style="width: 205px;"> <p>&nbsp;</p> </td> <td valign="top" style="width: 252px;"> <p><strong>Historical Average</strong></p> </td> <td valign="top" style="width: 123px;"> <p><strong>Current</strong></p> </td> <td valign="top" style="width: 120px;"> <p><strong>Discount</strong></p> </td> </tr> <tr> <td valign="top" style="width: 205px;"> <p><strong>Price to Earnings (S&amp;P 500 / earnings per share)</strong></p> </td> <td valign="top" style="width: 252px;"> <p>19.40 multiple (average since 1986)</p> </td> <td valign="top" style="width: 123px;"> <p>13.90 multiple</p> </td> <td valign="top" style="width: 120px;"> <p>28% discount</p> </td> </tr> <tr> <td valign="top" style="width: 205px;"> <p><strong>Price To Book ratio (S&amp;P 500 / Book value per share)</strong></p> </td> <td valign="top" style="width: 252px;"> <p>3.06 multiple (average since 1994</p> </td> <td valign="top" style="width: 123px;"> <p>2.18 multiple</p> </td> <td valign="top" style="width: 120px;"> <p>28% discount</p> </td> </tr> <tr> <td valign="top" style="width: 205px;"> <p><strong>Price to Cash Flow (S&amp;P 500 / cash flow per share)</strong></p> </td> <td valign="top" style="width: 252px;"> <p>12.3 multiple (average since 1998)</p> </td> <td valign="top" style="width: 123px;"> <p>7.75 multiple</p> </td> <td valign="top" style="width: 120px;"> <p>37% discount</p> </td> </tr> </tbody> </table> <p> </p> <p><em>Source: Bloomberg</em>&nbsp;</p> <br /> <p>On a broad-based level, there appears to be significant value at current levels. However, consider some of the subsets inside the S&amp;P 500:</p> <p>&nbsp;</p> <ul> <li>Standard and Poor&rsquo;s Info Technology is trading at 14.7 times while the average multiple of this index over the last 10 years has been 22.4 times, or a current discount level of nearly 35%. As a little incentive, consider earnings expectations are expected to grow 15.17% by years end from current levels.</li> <li>The S&amp;P 500 Financial components are trading at 1.02 multiple of price-to-book value while average over last 10 years has been around 1.40 times.</li> <li>The S&amp;P 500 Healthcare component is trading at 12.9 times earnings currently with a price-to-cash flow of 10.20 times. Both of these are discounts to averages of nearly 20%. One may find an interesting seasonal pattern in the Healthcare component of this index that has sold off 16% during the summer months over the last two years. We don&rsquo;t foresee as significant a selloff in this sector this year, but if it were to occur, it may prove beneficial to buy this sector on the dips.</li> </ul> <p>&nbsp;</p> <p>Today, we also received via the media that Warren Buffett is continuing to buy stocks due to their value. According to an MSNBC interview, Mr. Buffett stated, &ldquo;Well it really doesn&rsquo;t make any difference to us. We were buying stocks on Friday and we&rsquo;ll buy the same stocks today and we&rsquo;ll buy them a little cheaper. I never complain about buying things cheaper.&rdquo; </p> <p>&nbsp;</p> <p>Though we would agree with this sentiment, the market could rally from the current level and a discounted value would still remain. If the sell in May crowd does become the majority, the minority of buyers look to benefit from our perspective. </p> <p>&nbsp;</p> <p>To further illustrate this opportunity over the long run, consider the rolling 10-year S&amp;P 500 returns since 1926 that we brought out in December. </p> <p>&nbsp;</p> <p><img style="float: left;" title="Rolling 10 Year Compounded Returns S&amp;P 500" alt="Rolling 10 Year Compounded Returns S&amp;P 500" src="http://www.aamlive.com/images/blog/rolling-10-year-compounded-returns-s-p-500.jpg?sfvrsn=2" /></p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>Reversion to the mean may prove very profitable to those investors willing to buy when sellers abound and hold while the buyers push equity prices back to the mean. Though it may not have proven successful in the last decade, positions and patience may be the two ingredients to successful investing in the next decade. </p> <p>&nbsp;</p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="https://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="https://www.aamlive.com/legal/commentary-disclosures"><em>www.aamlive.com/blog/about/disclosures</em></a><em>. For additional commentary or financial resources, please visit </em><a href="https://www.aamlive.com/blog"><em>www.aamlive.com</em></a></p>a48ab3af-8751-4592-b6e3-791dd60a3810http://www.aamlive.com/blog/201205/inflation-protection-and-higher-yields-through-non-dollar-bonds economybondsinflationdollartradewindsMarket CommentaryU.S. EconomyAs a result of these policies, Tradewinds believes that the current U.S. debt burden will lead to a significant devaluation of the U.S. dollar.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/DdWno-SXmDY" height="1" width="1"/>Fri, 04 May 2012 17:20:07 Z<p> <strong>By Tradewinds Investment Management</strong></p> <p>Harvard economist Kenneth Rogoff recently co-authored a book called <span style="text-decoration: underline;">This Time is Different: Eight Centuries of Financial Folly</span>.&nbsp; The book looks back over the past 800 years and asks two questions:</p> <br /> <ol start="1" style="list-style-type: decimal;"> <li>For countries, what constitutes a debt burden that is too great?</li> </ol> <ol start="2" style="list-style-type: decimal;"> <li>What are the consequences when a country&rsquo;s debt burden becomes too great?</li> </ol> <p>With respect to the first question, Rogoff believes that when a country&rsquo;s debt burden reaches 100% of Gross Domestic Product (GDP), the country faces the possibility of financial crisis or collapse. The acknowledged debt of the United States already sits at roughly 100% of GDP, but that&rsquo;s only a fraction of the story. When off balance sheet obligations and unfunded liabilities are included, such as Medicare, Medicaid Social Security, Fannie Mae, and Freddie Mac, the U.S. debt to GDP ratio balloons to between 600% and 800%*, a range far beyond the level that Rogoff believes a country can sustain without falling into a significant financial crisis.&nbsp; </p> <p>Regarding the second question, Rogoff suggests that the United States has only three viable alternatives for addressing its growing debt burden: </p> <br /> <ol start="1" style="list-style-type: decimal;"> <li><span style="text-decoration: underline;">Raise taxes substantially</span>.&nbsp; Democrats find this option appealing, but analysts point out that even if the tax rates for the top 20% of taxpayers were doubled, the U.S. debt burden would not be significantly reduced.&nbsp; </li> </ol> <ol start="2" style="list-style-type: decimal;"> <li><span style="text-decoration: underline;">Cut government spending substantially</span>.&nbsp; Republicans find this option appealing, but it is problematic from a social and political standpoint.&nbsp; Half of Americans receive more from the government than they pay in taxes and would likely oppose any cutbacks.&nbsp; Moreover, the government itself is in denial over the scope of the problem. Including Medicare, Medicaid, Social Security, Fannie Mae, Freddie Mac, and other off-balance sheet entitlements and obligations, estimates of the total debt and unfunded liabilities of the U.S. Government range from $65 trillion to $120 trillion*. Yet, the &ldquo;super committee&rdquo; was only charged with finding an inconsequential $1.26 trillion in spending cuts. On November 21, 2011, the super committee announced that it had failed to agree on a deal, further evidence of the intractability of the U.S. debt burden.&nbsp; </li> </ol> <ol start="3" style="list-style-type: decimal;"> <li><span style="text-decoration: underline;">Reduce the debt burden through a weaker currency</span>.&nbsp; The U.S. government presently has a huge incentive to push the U.S. dollar lower, as this reduces the value of the U.S. debt burden.&nbsp; If U.S. policies can push the dollar down by 50%, it effectively reduces the U.S. debt burden by 50% (since debts are repaid with dollars worth only half as much).&nbsp; Tradewinds believes that this option is politically appealing because it allows government to manage the debt burden lower without the political costs of raising taxes or cutting spending.&nbsp; Moreover, it is likely that the vast majority of Americans are (and will remain) substantially unaware of the effects of inflation and currency devaluation.&nbsp; The downside of this approach is that a weaker dollar is eventually inflationary.&nbsp; Politicians might be able to live with this, however, as inflation can be blamed on bankers, speculators and financial opportunists.&nbsp; Remember Gerald Ford&rsquo;s &ldquo;Whip Inflation Now&rdquo; campaign?&nbsp; Government blamed consumers and businesses for creating inflation when in fact it stemmed from government&rsquo;s monetization of debts incurred to fight the Vietnam War. </li> </ol> <p>As the authors note in <span style="text-decoration: underline;">This Time is Different: Eight Centuries of Financial Folly</span>, throughout financial history, governments have tried to escape high debt levels through a weaker currency.&nbsp; There is absolutely no reason to expect the U.S. will be any different.&nbsp; Besides the rationale described above, a weaker dollar is attractive because it stimulates one of the few bright spots in the U.S. economy &ndash; the export sector.&nbsp; As the U.S. dollar moves lower, it makes U.S. exporters more competitive and puts people back to work.</p> <p>As a result of these policies, Tradewinds believes that the current U.S. debt burden will lead to a significant devaluation of the U.S. dollar.&nbsp; To hedge against this possibility, prudent investors may be well-served by diversifying a portion of their assets out of U.S. dollar-denominated assets and into a portfolio of fixed income securities denominated in currencies that are expected to either hold their value, or appreciate, against the U.S. dollar.</p> <p>* <span style="text-decoration: underline;">USA Inc. &ndash; A Basic Summary of America&rsquo;s Financial Statements</span> by Mary Meeker and The 2009 <br /> &nbsp;&nbsp;Medicare and Social Security Trustees Report</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>www.aamlive.com/blog/about/disclosures</em></a><em>. For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/blog"><em>www.aamlive.com</em></a><br /> <a href="http://www.aamlive.com/blog"><em> </em></a><br /> <em>The information contained herein is obtained from Tradewinds Investment Management and believed to be reliable. The information is not warranted as to completeness and accuracy and is subject to change without notice. The foregoing has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security.</em></p> <p><em>Advisors Asset Management, Inc. (AAM) and Tradewinds Investment Management are not affiliated and the views expressed in this commentary are not necessarily that of AAM.</em></p>da1f9948-fd12-4537-9559-db0b334b55a6http://www.aamlive.com/blog/201205/safest-market-in-the-world- yieldsbondstreasuriesJim CostasMarket CommentaryU.S. EconomyOver the years, investors have exercised a trading practice known as the “flight to quality.” This has meant that in times of uncertainty, investors sell risk assets and invest in riskless assets, which in many cases are U.S. Treasuries.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/YVEovK-oBJg" height="1" width="1"/>Wed, 02 May 2012 20:16:23 Z<p>Over the years, investors have exercised a trading practice known as the &ldquo;flight to quality.&rdquo; This has meant that in times of uncertainty, investors sell risk assets and invest in riskless assets, which in many cases are U.S. Treasuries. For this comfort level, the investor currently receives around a 2% taxable yield on a 10-year Treasury. The important realization is that the &ldquo;flight to quality&rdquo; is about credit risk; not market risk. In our opinion, if you are in the camp that the economy is not doing well or that we are in for a double-dip recession then you might want to stick with these riskless assets; you might do relatively well. If you believe as I do that the economy is rebounding even at a slow pace and/or that all the stimulus that has been injected into the economy will eventually ignite inflation, then you may want to consider the following:</p> <blockquote> <p>*The highest yield ever on the 10-year Treasury was a 15.84% at close of business (COB) 9/30/81.</p> </blockquote> <blockquote> <p>*The lowest yield on the 10-year Treasury was a 1.71% at COB 9/22/11.</p> </blockquote> <p>That makes an average between the high and low over this period of time an 8.767% yield. </p> <p>However, just sticking to this century; the highest yield was a 6.78% on COB 1/20/00, which makes the simple average between the high and low a 4.24% yield. </p> <p>I happen to think that a 4.24% yield on the 10-year Treasury is not unreasonable to expect some time in the future. This 4.24% yield on the 10-year Treasury bond is roughly 225 basis points (BPS) or 2.25% higher yield than the 1.98% which was the yield on COB on 4/18/12., All things being equal, same coupon rate, same maturity, etc., the higher the yield the lower the value of the bond.&nbsp; In this example a yield of a&nbsp;1.98% (2% coupon) produces a value of $100.25.&nbsp; The yield of 4.24%&nbsp;produces a bond value of&nbsp;approximately $82. In this example, if rates rise 2.25%, the value of the bond drops 18%. For this risk, the investor receives an interest payment of 2.00% &ndash; taxable. Inflation is estimated around 2% for 2012, which theoretically means the investor is treading water with regards to purchasing power. There are other investments that have the potential to pay the investor more for the same market risk. </p> <p>For the generation that experienced the higher interest rates mentioned above and believe that higher rates are not unusual, the 8.767% average between the all-time high and low rates on the 10-year Treasury produce a dollar price of $56.00, or a loss of 44%. We are not suggesting we will reach these types of interest rates; just noting that we have been there before. What we are suggesting is that there are other investments with a relatively higher credit risk that have the potential to pay you more for the same market risk. </p> <p>On the other hand, it should be noted that even with a 10-year Treasury there is a definite maturity where the investor receives their full par amount back; this cannot be said for all fixed income investments such as fixed income funds, but that is a different discussion. Of course if you would like more information on this discussion you should read <a href="https://www.aamlive.com/blog/201204/bond-investors-beware-quicksand-ahead">Bond Investors Beware: Quicksand Ahead</a>. </p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/~/legal/commentary-disclosures/"><em>disclosures</em></a><em> webpage for additional risk information. For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/~/blog"><em>www.aamlive.com/blog</em></a><em>.</em></p>cc504a1f-3bb2-491f-a063-f97a4a096213http://www.aamlive.com/blog/201205/china-s-economy-and-the-outlook-on-commodities ChinacommoditiesConfluenceMarket CommentaryGlobal MarketsOver the past month, commodity prices have declined rather sharply. The Commodity Research Bureau index of commodity prices is down over 5% with weakness showing in most groups.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/2F92tP_zj5c" height="1" width="1"/>Tue, 01 May 2012 18:32:04 Z<p>Over the past month, commodity prices have declined rather sharply. The Commodity Research Bureau index of commodity prices is down over 5% with weakness showing in most groups. In the early part of the year, oil prices levitated against most other commodities but over the past month, the combination of expanding Saudi production and persistent threats of a global Strategic Petroleum Reserve release have pushed oil prices lower. </p> <p>&nbsp;</p> <p>Another factor that has weighed on commodities is political turmoil in China. Bo Xilai, a rising star in the Chinese Communist Party and the son of a legendary Chinese general, was purged over the past month. His removal from power was very important because he was expected to gain a seat on the ni ne-member Politburo Standing Committee, the most powerful body in China. Ostensibly, Bo&rsquo;s removal was due to a scandal involving an underling, but in reality his ouster reflects a divergence of opinion on the future path of policy. For the past two decades, China has followed a &ldquo;growth first&rdquo; program that made economic growth the primary policy goal. This headlong move for growth has been a major factor behind the rise in commodity demand over the past 20 years. There are fears that China may be reversing this policy and these worries have dampened commodity prices. However, this change in policy isn&rsquo;t to reverse growth&mdash;instead, it is a plan to make growth more balanced by supporting consumption and slowing investment. Although we would expect some moderation in Chinese commodity consumption, barring a serious bout of civil unrest, we would still expect China&rsquo;s commodity demand to remain strong. Assuming China&rsquo;s current slowdown does not accelerate, we would expect commodity prices to recover later this year. </p> <p>&nbsp;</p> <p>At the same time, better U.S. economic data has lessened the odds of Federal Reserve quantitative easing and worries about Eurozone stability have boosted the dollar. In general, a stronger greenback is bearish for commodity prices as the latter is priced in dollars. Although the dollar is higher, we don&rsquo;t view that as a compelling argument for sharply bearish commodity prices in the long run. Essentially, the central banks of the major market currency countries are trying to simultaneously debase their currencies. At some point, we would expect investors to buy commodities to help protect their savings from what is essentially policy-induced confiscation. </p> <p>&nbsp;</p> <p>Ultimately, the actions by the central banks undermine investor confidence in their currencies and this factor is supportive to commodity prices. Over time, we expect commodities to become the definitive store of value. </p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/~/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/~/legal/commentary-disclosures"><em>www.aamlive.com/blog/about/disclosures</em></a><em>. For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/~/blog"><em>www.aamlive.com</em></a></p> <p><a href="http://www.aamlive.com/~/blog"><em><br /> </em></a></p> <p><em>The information contained herein is obtained from Confluence Investment Management LLC and believed to be reliable. The information is not warranted as to completeness and accuracy and is subject to change without notice. The foregoing has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security.</em></p> <p>&nbsp;</p> <p><em>Advisors Asset Management, Inc (AAM) and Confluence Investment Management LLC are not affiliated and the views expressed in this commentary are not necessarily that of AAM.</em></p> <p>&nbsp;</p> <p><em>Confluence Investment Management LLC is the Portfolio Consultant to the Confluence Hard Assets Unit Investment Trust. The Portfolio Consultant is not an affiliate of Advisors Asset Management, Inc. (AAM), the sponsor of this trust. </em></p> <p>&nbsp;</p>bd173ca3-48fb-4233-bdfa-11898e0a4bcfhttp://www.aamlive.com/blog/201205/customized-structured-investment-solutions strikeshelf offeringone offbrad schultheisStructured ProductsAdvisor Best PracticesPurchasing new issue structured products can be likened to purchasing a new car.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/iKy09B9Wmkc" height="1" width="1"/>Tue, 01 May 2012 15:56:01 Z<p>When purchasing a new car, some customers will go to their local dealer and find a car on the lot with most of the features they want. The manufacturer has pre-determined these features and though it may not be exactly what they want, it&rsquo;s pretty close. This one is silver and has a rear entertainment system. This one is black, but has a moon roof. Pretty close, but maybe some compromise is required.</p> <p>&nbsp;</p> <p>Other customers will work with the dealer to get exactly what they want. They&rsquo;ll pick the color, what packages and features are available and determine what is possible within their budget. No compromise, but some patience is required.</p> <p>&nbsp;</p> <p>Purchasing new issue structured products can be likened to this experience. A car that is on the lot would be comparable to a &lsquo;calendar&rsquo; or &lsquo;shelf&rsquo; offering. These are products distributed on a monthly basis in which the terms are pre-determined, within a specific range. A car that is ordered from the manufacturer would be comparable to a &lsquo;one off&rsquo;; a customized offering designed to meet the requirements of the individual investor where a monthly offering may fall short.</p> <p>&nbsp;</p> <p>There are a number of advantages to creating a one off as opposed to a shelf offering. The two primary advantages are customization and competitive pricing. However, this does bring along the disadvantage of a potential liquidity constraint.</p> <p>&nbsp;</p> <p>A one off is typically constructed and priced to strike on the same day the inquiry is made. This allows the issuing entity the ability to provide better terms (i.e. higher coupon, lower barrier, shorter maturity, etc.) because they are able to pinpoint their potential risk for market movement down to an intraday basis. Since shelf offerings typically require an offering period of 2-3 weeks, the issuing entity must provide themselves flexibility within the terms to account for market movement over a much greater period of time. This can be potentially disadvantageous regarding the final terms of the investment.</p> <p>&nbsp;</p> <p>Additionally, a one off will allow an advisor to bring the same term constraints of their choosing to a variety of issuing entities at the same time, with virtually any underlying asset. Not all issuers of structured products will have the same parameters for the same underlying asset at the same time. Presenting the inquiry to multiple issuers simultaneously will give the advisor a better opportunity to receive the best available pricing among a variety of issuers, to then make the best selection for their end clients.</p> <p>&nbsp;</p> <p>The primary drawback to a one off is that &ndash; in many cases &ndash; the issue would be smaller than some of the shelf offerings. This could theoretically make the issue less liquid; resulting in difficulty obtaining a bid and executing a sell order. However, obtaining a bid will usually only create liquidity problems with much larger trades, but this could potentially be the case with shelf offerings as well. </p> <p>&nbsp;</p> <p>Customized products can be created for as little as $250,000 in aggregate orders; however, some structures require $3,000,000 to bring to market. </p> <p>&nbsp;</p> <p><em>Structured products are subject to a variety of risks, may not be suitable for all investors, and are sold only by prospectus. Investors should consult a financial professional before making any investment decision.</em><br /> <br /> <em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/~/legal/commentary-disclosures/"><em>disclosures</em></a><em> webpage for additional risk information. For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/~/blog"><em>www.aamlive.com/blog</em></a><em>.</em></p> <p>&nbsp;</p> <p>&nbsp;</p>76c0b480-1333-4ef1-8fea-62d45ff56170http://www.aamlive.com/blog/201204/the-disconnect-between-the-oil-market-and-china-s-gdp crudeChinaoilMatt LloydMarket CommentaryGlobal MarketsCharting any security has become a complex mixture of science and art over the years. Perhaps charting is more closely followed in the commodity markets with currency and equities following closely behind.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/iS9jckW7SLk" height="1" width="1"/>Mon, 30 Apr 2012 20:23:15 Z<p>Charting any security has become a complex mixture of science and art over the years.&nbsp; Perhaps charting is more closely followed in the commodity markets with currency and equities following closely behind.</p> <p>Fundamentally, we have shown some disconnects in the oil market&rsquo;s price with that of one of the largest contributors to its rise &ndash; the growth rate in China.&nbsp; Last week, China reported a growth rate of 8.1%, which would be the envy of nearly every other country except for the fact that China has averaged &nbsp;9.50% for the past 20 years.&nbsp; What has brought about some curiosity, is the stability in oil and the disconnect with China&rsquo;s GDP.</p> <p style="text-align: left;"><img width="520" height="260" src="http://www.aamlive.com/images/blog/crude-and-china.jpg?sfvrsn=2" alt="crude and China" title="crude and China" style="float: left;" /></p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>Following the broad arrows shows some decent correlation; however, the recovery in oil has not coincided with the recent drop in the gains of the Chinese economy.&nbsp; Whenever we see large disconnects such as this, some reversion looks to be expected.&nbsp; As evidenced by the following chart, it looks like it might be coming sooner rather than later, according to the Bloomberg chart below.</p> <p>&nbsp;</p> <p><img width="520" height="295" src="http://www.aamlive.com/images/blog/crude-year-to-date.jpg?sfvrsn=2" alt="crude: year to date" title="crude: year to date" style="float: left;" /></p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>What we see representing the green and red lines is traditionally called a &ldquo;flag&rdquo; or &ldquo;pennant&rdquo; pattern.&nbsp; The expectation is that as the band narrows toward the end of the pennant, often a breakout or breakdown is seen.&nbsp; As to which way it breaks, one must look at a large number of criteria and often seem only rational after the fact.&nbsp; </p> <p>What we tend to see forces that seem to point to a slight break down versus breaking up.&nbsp; </p> <p>Reasons why it might break down:</p> <ul> <li>Already seeing the flare up of the European crisis start to drag on economic growth expectations.</li> <li>China&rsquo;s GDP is running below average at its current rate</li> <li>The U.S. Stealth recovery is still continuing to gain traction, though not at levels that oil bulls may feel will support global growth in lieu of Europe and China&rsquo;s tepid (subjective with regards to China) growth.</li> <li>Drop in demand for gasoline on an aggregate domestic scale as gasoline consumption dropped by 3% through the first quarter of 2012 from the same time in 2011, according to the MasterCard spending reviews.&nbsp; The increase in the average miles per gallon from car manufacturers just exceeded 24, which is an increase of 20% from just four years ago.</li> <li>There is also the estimated increase in the U.S. production of oil that now is estimated to increase by 500,000 barrels a day by 2020.</li> </ul> <p>&nbsp;</p> <p>Perhaps the one aspect that has been keeping oil from declining is the age old issue of political stability in the Middle East as well as disruptive supply expectations.</p> <p>It appears the crystal ball for the immediate outlook for oil can be a bit &ldquo;crude,&rdquo; but in joining the recent price patterns and the preponderance of potential short-term negative news for oil, a drop might be expected over the summer.&nbsp; </p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/~/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/~/legal/commentary-disclosures"><em>www.aamlive.com/blog/about/disclosures</em></a><em>. For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/~/blog"><em>www.aamlive.com</em></a> </p> <p>&nbsp;</p>87151000-412c-4a06-8851-ad763606f070http://www.aamlive.com/blog/201204/new-bill-to-provide-additional-investor-protection Investment Oversight Act of 2012billRandy PeggMarket CommentaryThe U.S. government has introduced a bipartisan bill that should provide additional investor protection<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/SBspTlPrD1E" height="1" width="1"/>Mon, 30 Apr 2012 14:04:19 Z<p>The U.S. government has introduced a bipartisan bill that should provide additional investor protection. The bill is called the Investment Oversight Act of 2012 and was introduced by House Financial Services Committee Chairman Spencer Bachus (R-LA) and&nbsp;Rep. Carolyn McCarthy (D-NY). &nbsp;</p> <p>Chairman Bachus and Rep. McCarthy introduced their proposal in response to a Securities and Exchange Commission (SEC) study that revealed the agency lacks resources to adequately examine the nation&rsquo;s nearly 12,000 registered advisers. As part of its study, which was a requirement of the Dodd-Frank Act, the SEC recommended a self-regulatory organization as one option for Congress to consider as it looks for ways to help the agency monitor the industry.</p> <p>The SRO would be funded by membership fees and would require investment advisors to take regular exams. The bill aims to amend the Investment Advisors Act of 1940 by creating the National Investment Advisors Association (NIAA). This organization would be registered and overseen by the SEC. Investment advisors would be forced to join this organization if they conduct business with retail investors.</p> <p><a href="http://www.hedgefundlawblog.com/wp-content/uploads/2012/04/Investment-Adviser-Oversight-Act-of-2012.pdf">Click here to view a copy of the bill</a> </p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>www.aamlive.com/blog/about/disclosures</em></a><em>. For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/blog"><em>www.aamlive.com</em></a> </p>53c61d02-d22d-432b-8ab3-4c2f022c6997http://www.aamlive.com/blog/201204/trying-to-earn-some-respect Mike Boyleequitiesequity marketsMarket CommentaryEquity MarketsIt seems lately, almost like clockwork, every time we enter earnings season we are inundated with the same sound bites.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/ZAW5JdazEsU" height="1" width="1"/>Fri, 27 Apr 2012 18:29:53 Z<p>It seems lately, almost like clockwork, every time we enter earnings season we are inundated with the same sound bites. These have included but are not limited to<em>: Margins have no place to go but down. Sure, a lot of companies are beating earnings, but that is only because the bar is set so low. Earnings gains are the result of cost cutting and not revenue growth.</em> This earnings season, which began on April 10 with Alcoa&rsquo;s release, has been no different yet once again we believe the results are very solid and worthy of some respect. With about 54% of the S&amp;P 500 having reported earnings this earnings season is, statistically, above the long-term average, above the current bull market average and also above last quarter. The statistics we track are earnings surprise, year-over-year earnings growth, revenue surprise, and year-over-year revenue growth. Of specific note, is revenue surprise which currently sits at 67% well above last quarter&rsquo;s reading of 54%. It tells us analysts continue to be under estimating the strength of business, and please understand this is not being driven by just a few standout companies. We have seen the likes of fast food companies, retailers, consumer electronics manufacturers, and the makers of industrial fasteners report record earnings and for the most part also discuss pretty optimistic outlooks. We continue to believe this will help drive modest gains for equities through the end of 2012.</p> <p>Last month we discussed that we thought the equity markets were due for a mild pullback and they did just that with the S&amp;P 500 pulling back by 4.26% (4/2/2012 &ndash; 4/10/12). We also highlighted the fact that the average dividend-paying stock in the S&amp;P 500 was under performing the average non dividend-paying stock year-to-date and it looks like that trend is beginning to reverse as dividend-payers have outperformed by 3.02% since that post (3/22/12 &ndash; 4/26/12) while the S&amp;P 500 has essentially treaded water (up .52%). We would expect that trend to continue and believe dividend-paying equities could help cushion the volatility as we move into a historically weak period (Sell in May and Go Away&hellip;). On the other end of the barbell we continue to favor areas that we feel could provide well above average growth and one sector that fits the bill is information technology (IT). IT was our favorite sector at the beginning of the year and so far is the best performing of the ten economic sectors year-to-date (IT&rsquo;s total return is 20.22% and the S&amp;P 500&rsquo;s is 12.04% year-to-date (12/31/11 &ndash; 4/26/12)) and we believe there is still more to come. For the current quarter IT earnings (S&amp;P 500 constituents) are up 23.22% (9.24% on an equally-weighted basis). In addition, they are projected to grow at 20.77% over the next year which is about twice the rate expected for the S&amp;P 500 yet IT is only trading at an 8% premium based on trailing price-to-earnings.&nbsp; &nbsp;</p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>www.aamlive.com/blog/about/disclosures</em></a><em>. For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/blog"><em>www.aamlive.com</em></a> </p>ca9fe672-de2c-4b58-adb6-408a3ceb24f9http://www.aamlive.com/blog/201204/a-u.s.-double-dip-recession-unlikely double-dipdial capitalrecessionMarket CommentaryU.S. EconomySo far in 2012, we have witnessed a market that is haunted by familiar demons; the Euro-Crisis, Mid-East tensions and high oil prices, stubborn U.S. unemployment, a crippled housing market, and soaring U.S. deficits.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/rSlSnxaaZOM" height="1" width="1"/>Thu, 26 Apr 2012 20:18:09 Z<p>So far in 2012, we have witnessed a market that is haunted by familiar demons; the Euro-Crisis, Mid-East tensions and high oil prices, stubborn U.S. unemployment, a crippled housing market, and soaring U.S. deficits. They roiled the market last fall and have never gone far away, but nevertheless the S&amp;P 500 rose 12% in the 1st quarter. The corporate bond Index, the Merrill BBB 3-5 year Index, had a return of 3.83%, the best 1st quarter since 2009's 5.05% and before that in the last 20 years only topped in 2001, 1995 and 1993. </p> <p>Turn the page and in the first three weeks of April the S&amp;P 500 Index has now dropped 3% due to a refocusing on the usual suspects that been concerning the market for over a year.&nbsp; The bond Index, however, has managed to scrape together a positive 39 basis point return in April on the back of a 22 basis point reduction of yield on the 5-year U.S. Treasury, back down to 81 basis points (0.81%), falling from 1.11% on April 3, on the same concerns troubling the stock market and keeping gold in the mid-1600s. </p> <p>We seem to have grown more comfortable with these devils we know, perhaps because they aren't getting worse but nevertheless are bumping along fairly close to the bottom.&nbsp; Besides the "fix" in Greece, most of these problems are pretty much the same as they were during the market correction last summer/fall.&nbsp; We likely need only a new catalyst event to trigger another stock market sell-off to more like the 15% slide we saw in August. </p> <p>We also saw credit spreads in the bond Index go from inside of 200 basis points in late July to almost 325 in early October.&nbsp; They have since dropped steadily throughout the 1st quarter to just over 250 basis points, a level we find attractive verses long-term spread levels and noticeably enhanced on a relative basis by the historically low levels of U.S. Treasury yields, as the long-term credit spread levels are against much higher average U.S. Treasury yields than today's levels. </p> <p>Offsetting all these vexing problems, of course, is the amazing strength of corporate profits, hitting new all-time highs despite all the low-hanging fruit for doomsayers. Therein lies the core strength of a corporate bond investment strategy at this time, in our opinion:&nbsp; You are not catching a falling knife; profitability has been strong.&nbsp; Credit risk has been further reduced by the easy access to capital the market has offered corporate bonds issuers for the past three years as investors sought income and security.&nbsp; As a result, balance sheets have very high levels of cash, average interest costs have been reduced, and debt maturity schedules have been extended and credit agreements fine-tuned.&nbsp; </p> <p>If a double-dip global recession is in the cards, which is not our expectation in the near-term and we feel is very unlikely in 2012, corporate bonds should survive the ordeal noticeably better than the 2008 bottoming by virtue of the lesser need for near-term financing which their very strong balance sheets provide, and the positive investment returns corporate bonds demonstrated for buyers in the last downturn.</p> <p> Our expectations in the near-term is for continued volatility between corporate earning seasons, with a relative high vulnerability to external shocks triggering a market sell-off, such as new military action in the Middle East, and an equally high exposure to disappointments in corporate earnings, it being the one leg of the stool holding everything together right now.&nbsp; We see only minor incremental progress on the unemployment and housing fronts this year and next to nothing on the U.S. budget issues in this election year, which itself is a ticking time bomb of very large automatic budget cuts and tax increases next January without intervention.&nbsp; Along with the Mid-East powder keg scenario, and the ripple effect of the attempts at austerity in Europe, we anticipate that the market will continue to vacillate between risk-on/risk-off sentiments with stocks generally moving higher overall on the strength of earnings and the dividends they can support, and the relative unattractiveness of cash interest rates and U.S. Treasury bond yields.&nbsp; </p> <p>We expect that BBB corporate bond credit spreads will range between pushing inside on 200 basis points if stocks can achieve a sustained rally over several weeks, and drifting quickly towards 300 basis points on renewed signs of stress in the system.&nbsp; </p> <p>&nbsp;</p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/~/legal/commentary-disclosures"><em>www.aamlive.com/blog/about/disclosures</em></a><em>. For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/~/blog"><em>www.aamlive.com</em></a><a href="http://www.aamlive.com/blog"><em></em></a></p> <p><a href="http://www.aamlive.com/blog"><em><br /> </em></a></p> <p><em>The information contained herein is obtained from Dial Capital Management, LLC and believed to be reliable. The information is not warranted as to completeness and accuracy and is subject to change without notice. The foregoing has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security.</em></p> <p><em><br /> </em> </p> <p><em>Advisors Asset Management, Inc. (AAM) and Dial Capital Management, LLC are not affiliated and the views expressed in this commentary are not necessarily that of AAM.</em> </p>6d997833-4442-4e14-959e-9a7beb70c07chttp://www.aamlive.com/blog/201204/rising-rates-why-municipal-bonds-may-weather-the-storm yieldsTom Dalpiazmunicipal bondsinterest ratesTreasury bondsFeaturedMarket CommentaryBond MarketsMunicipal MarketsA rising interest rate environment over the next few years is an investment scenario to which many investors now subscribe.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/XpSBEjVlCUA" height="1" width="1"/>Mon, 23 Apr 2012 15:24:08 Z<p>A rising interest rate environment over the next few years is an investment scenario to which many investors now subscribe. The prospect of rising rates often prompts investors to think along the following lines: &ldquo;Interest rates are going rise and that&rsquo;s bad for bonds, so I&rsquo;ve got to cut back or stay away completely.&rdquo; But what if we suggested that investment grade, intermediate municipal bonds (&ldquo;muni&rsquo;s&rdquo;) might weather a rising rate storm comparatively well? We can&rsquo;t issue guarantees on such a scenario, of course, but we do believe there are a number of factors worth considering that could help municipal bonds lessen the negative impact of generally rising interest rates.</p> <p>Consider the following forces currently working or likely to appear in the near future:</p> <ul> <li>Demand for municipal bonds has grown since last year and is remaining strong. Reasons for this demand include increasing investor comfort with resilient municipal bond credit quality and the growing realization that municipal bond yields simply continue to make sense for top tax bracket investors given conservative alternatives available. </li> </ul> <ul> <li>Demand for municipal bonds may continue to be strong as investors seek to avoid higher tax rates that could come down the road. </li> </ul> <ul> <li>Supply of new issue municipal bonds, while above last year&rsquo;s low levels, may come in below expectations as many issuers plan modest bond issuance for new projects. Many of these issuers are still in the mode of getting their fiscal house in order by constraining debt issuance among other measures. Supply has been low enough in the past year and a half to reduce the total amount of municipal bonds outstanding.</li> </ul> <ul> <li>Credit spreads among municipal bonds have become smaller in the past few months and could continue that trend given the gradually improving municipal bond credit quality we expect to materialize over the next few years.</li> </ul> <ul> <li>Municipal bond yields often exhibit less volatility than Treasury bond yields. Treasuries tend to be more of a trading vehicle for many investors which can contribute to more volatility relative to muni&rsquo;s. The tax-exempt nature of municipal bond yields also tends to result in smaller adjustments relative to fully taxable Treasury bonds.</li> </ul> <p>We agree that a trend of higher interest rates over the next few years appears likely. If that occurs, we don&rsquo;t suggest that investing in muni&rsquo;s will reverse the laws of bond mathematics. But our first impulse when we hear investors voice the &ldquo;interest rate are rising/ bonds are bad&rdquo; line is to think, &ldquo;Which rates are you talking about and what part of the bond market are you invested in?&rdquo; We suggest digging deeper when thinking about the prospect of higher rates. We believe that the combination of muni-specific factors listed above may work together to help counteract, in some degree, the forces pushing rates higher. We suggest that investment grade, intermediate municipal bonds may behave comparatively well among fixed income sectors in a challenging bond environment. </p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures/"><em>disclosures</em></a><em> webpage for additional risk information. For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/blog"><em>www.aamlive.com/blog</em></a><em>.</em></p>e8494337-c975-4414-8c7d-3c84e94279f2http://www.aamlive.com/blog/201204/price-and-waistline-stability-prove-elusive-as-inflation-creeps-up bondsinflationpurchasing powerScott ColyercashMarket CommentaryU.S. EconomyInflation is a fact of life. Sometimes it comes in glaring gluts and sometimes it comes subtly like a thief in the night but, in the end, it is always with us.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/bxEym_ng-kA" height="1" width="1"/>Thu, 19 Apr 2012 17:20:26 Z<p>Inflation is a fact of life.&nbsp; Sometimes it comes in glaring gluts and sometimes it comes subtly like a thief in the night but, in the end, it is always with us.&nbsp; Inflation doesn&rsquo;t just affect the prices of goods and services; it affects other things as well.&nbsp; In a recent sidebar in the April 7 edition of <em>The Economist</em>, titled &ldquo;<a href="http://www.economist.com/node/21552262"><em>Dressing Up</em></a>,&rdquo; the author pointed out that inflation not only affects prices but many other measurements as well.&nbsp; It seems that a recent study shows that women&rsquo;s clothing sizes have steadily gotten roomier over time.&nbsp; A size 10 in 2012 is now what a size 14 used to be in 1975.&nbsp; The thinking is that women are more likely to spend if they think they can squeeze into a smaller size.&nbsp; Men&rsquo;s waists have been expanding as well.&nbsp; A 36-inch waist is up to five inches bigger now than in 1975.&nbsp; Other examples of devaluation cited include hotels that now rate themselves 7 stars on what was traditionally a 5-star scale.&nbsp; &ldquo;Standard&rdquo; rooms are out and now choices begin at &ldquo;deluxe&rdquo; rooms.&nbsp;&nbsp; It takes more and more frequent flyer miles to obtain free travel now than it used to.&nbsp; It seems that inflation is a part of human nature.&nbsp; People, by their very nature, want more and seem to consistently try to obtain it by devaluing everything.&nbsp; </p> <p>Businesses participate in this trend by constantly trying to raise prices and fatten profits.&nbsp; Workers are always trying to gain higher wages and compensation.&nbsp; It is human nature to try to get more.&nbsp; Politicians and bankers are the worst.&nbsp; They rail against inflation but yet employ it in their practice.&nbsp; They find it easy to vote for spending they can&rsquo;t afford knowing that a bit of inflation will help reduce the price for future generations to pay.&nbsp; The value of promised benefits will have to drop as well.&nbsp; The Federal Reserve (Fed)&nbsp; actually targets inflation publicly at 2%.&nbsp; The problem is that they measure it by the Consumer&rsquo;s Price Index (CPI), which almost everyone believes understates true price inflation.&nbsp; Most of us easily come to that conclusion just by examining our own spending trends.&nbsp; We all know better but we all drink from the punch bowl.</p> <p>Inflation is as common a topic now as at any time in history.&nbsp; In 1974, President Gerald Ford pronounced inflation as &ldquo;public enemy number one&rdquo; and coined the term W.I.N. (Whip Inflation Now).&nbsp; During this time,&nbsp; we had double-digit inflation and double-digit interest rates.&nbsp; We have been through a period of relatively benign inflation over the past 30 years.&nbsp; In fact, over the past 10 years or so, we have had some brief interruptions of deflation as our housing and equity markets have had significant price corrections.&nbsp; Central banks are very busy engaging in the easiest monetary policy in modern history with a goal of actually causing some inflation.&nbsp; They are trying to fight perceived deflationary pressures by flooding the economy with additional currency and cheap borrowing rates.&nbsp;&nbsp; If history is any indication of what is to come, they may just guide us back into the inflation camp.</p> <p>Inflation is an insidious thief of purchasing power.&nbsp; As we don&rsquo;t have faith in the CPI as a true gauge of inflation, we would rather use other constant indicators of value over long time periods.&nbsp; We think that tracking the cost of a first class U.S. postage stamp over a couple of centuries provides some interesting insight.&nbsp; The service offered has stayed constant over the years even though the method of transporting mail has changed.&nbsp; In 1885, it cost two cents to mail a one ounce first class envelope.&nbsp; By 1965, the cost had risen to five cents.&nbsp; Over those 75 years, the price rose by 150%.&nbsp; Said another way, the value of a dollar in 1885 was reduced to 40 cents in 1965 &ndash; a 60% loss of purchasing power.&nbsp; From 1965 to 2012, the story gets markedly worse.&nbsp; Today&rsquo;s cost to send the same first class envelope is 45 cents.&nbsp; Thus, over this 47-year period, the price of the stamp rose nine times.&nbsp; That means that the value of a 1965 dollar is only around 11 cents today, or a loss of nearly 90%.&nbsp; Our point is that inflation may be muted in the government figures, but in reality it is much more of an issue.</p> <p>Our point here is that the debate should not be whether we have inflation, but how best to deal with it especially in an environment where the Fed is actually trying to generate inflation expectations.&nbsp; The Fed has infinite tools to expand the money supply as much as they feel is needed.&nbsp; They are engaged in very aggressive monetary expansion.&nbsp; We believe you should never fight the Fed.&nbsp; They will likely get their wish and even overshoot their inflation targets.&nbsp; Trends in inflation are secular and tend to go through long cycles of increases and decreases.&nbsp; We have been through 30 years of decreases yet the results to our dollar&rsquo;s purchasing power have been devastating.&nbsp; What follows?&nbsp; We think this combination of events will likely lead to an elongated period of elevated inflation worldwide.&nbsp; </p> <p>What should investors do if they believe that inflation will be a problem?&nbsp; Well, what they should be doing and what they are doing is very different.&nbsp; If you fear inflation, you should also expect higher interest rates.&nbsp; Interest rates rise during periods of inflation to compensate lenders for the loss of purchasing power from the time the money is borrowed until it is repaid.&nbsp; Given that interest rates are at their lowest rates since the end of World War II, it is not a big leap to believe that one day they may rise.&nbsp; Bondholders will be challenged when rates rise, but not as much as those who are keeping their money in cash.&nbsp; Cash earns no return and thus has a negative return when you consider the loss of purchasing power that inflation inflicts.&nbsp; </p> <p>We would counsel advisors and investors to seek returns in assets that generate a cash flow that can rise over the years with inflation.&nbsp; These would include Real Estate Investment Trusts (REITs), Master Limited Partnerships, dividend-paying equities and variable rate debt.&nbsp; These investments can produce higher incomes as higher inflation push interest rates up.&nbsp; Parking scared money in low-yielding or no-yield assets is destructive to an investors&rsquo; standard of living.</p> <p>Whether you are speaking about price inflation or girth inflation, the threat of expansion is always there.&nbsp; The long-time trends are firmly in support of consistent price inflation during the history of the United States.&nbsp; Our belief is that inflation is a natural inclination for people, businesses, politicians and central banks.&nbsp; Given the Fed&rsquo;s ultra-easy monetary policy aimed at creating inflation, we think it is pretty likely that we will eventually see it.&nbsp; Higher inflation requires investors to rethink where they invest.&nbsp; Cash and fixed income do little to cope with inflation and actually can be losers if held at times of higher than normal inflation rates.&nbsp; We think investors should take advantage of current bargains in real estate and equity asset prices that have the opportunity to increase their investment income over time.</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures/"><em>disclosures</em></a><em> webpage for additional risk information. For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/blog"><em>www.aamlive.com/blog</em></a><em>.</em></p>022e5ec9-aca6-479d-9558-d0765acb7edbhttp://www.aamlive.com/blog/201204/what-to-do-with-the-daily-data-divulge- recencyMatt LloydEconomistdataMarket CommentaryU.S. EconomyAs we peruse through the myriad of daily economic and market data, it is easy to be inundated to the point of paralysis.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/tWJN-3NrAGg" height="1" width="1"/>Wed, 18 Apr 2012 20:04:05 Z<p>As we peruse through the myriad of daily economic and market data, it is easy to be inundated to the point of paralysis.&nbsp; In the month of March, there were 120 economic data releases (not including all subsets of numbers) for the United States according to the Bloomberg Economic calendar.&nbsp; While that is numerous and we would argue many of the more relevant numbers lie in the subsets and trends of such numbers, this is dwarfed when compared to the World wide releases of economic data which stood at 1,700.&nbsp; This doesn&rsquo;t include the seemingly infinite amount of corporate earnings announcements. &nbsp;While many of those may not seem relevant to the average U.S. investor, these numbers are generated for a purpose of which some investors may place a heavy weight and influences their investment decisions.&nbsp; We often speak about how looking at the initial releases of &ldquo;important&rdquo; data has been minimized by the severity of the revised numbers that follow.&nbsp; The job of interpreting the data is far more important and also much more artistic than at times in the past.</p> <p>A favorite column of mine is from the Economist and titled under the anonymous author, Buttonwood.&nbsp; On July 12, 2007, Buttonwood penned a rather remarkable <a href="http://www.economist.com/node/9482952?story_id=9482952">article</a>, with some highlights below regarding &ldquo;too much information.&rdquo;</p> <p><em>&ldquo;For example, an extraordinary amount of attention is paid to analysts' forecasts of company profits. But a study by James Montier and Rui Antunes of Dresdner Kleinwort, an investment bank, found that the average forecasting error on such predictions was 43% over 12 months and 95% over two years.</em> </p> <p><em>More information does not necessarily lead to better decisions. Michael Mauboussin of Legg Mason, a fund-management group, cites a study that gave horse-racing handicappers varying amounts of information when ranking horses. The more information they received, the more confident they became about their answers. But the success of their predictions was actually worse when given 40 pieces of information, than when given five.</em> </p> <p><em>One of the most striking undermines the capital-asset pricing model, the basis for academic analysis of the markets. In the model, stocks that are more volatile (&ldquo;high beta&rdquo; in the jargon) produce higher returns than more stable (&ldquo;low beta&rdquo;) securities. But a study by Jeremy Grantham of GMO, a fund-management firm, found that, over the period from 1963 to 2006, the supposedly boring low-beta stocks beat the racier high-beta ones by as much as four percentage points a year.&rdquo;</em> </p> <p>A lot has changed since July 2007, which has only led to the increased influence of the &ldquo;Recency Bias.&rdquo;&nbsp; Recall the recency bias&rsquo; basic premise is that recent events influence expectations for the immediate future.&nbsp; As such, the last few years have seen various bubbles burst (equity, housing, etc.), with the most important bursting bubble being that of confidence.&nbsp; Confidence has grown from 2008, but many would argue it still has a long way to go.&nbsp; We get the sense that many investors are reminded of the quote: &ldquo;Remember, amateurs built the ark. Professionals built the Titanic.&rdquo; </p> <p>This is not necessarily a new phenomenon as it occurs in nearly every lengthy recession, but the severity of it could be classified as historical. With this in mind, the &ldquo;Wall of Worry&rdquo; that is currently facing the markets appears as wide as it is deep.&nbsp; This is an important ingredient to a recovery, albeit an unquantifiable one.&nbsp; A typical response in meeting this wall of worry, we also have some of the largest positions of cash equivalents in the household, corporate and banking sectors.&nbsp; </p> <p>Simply ignoring the immense amount of data would be foolhardy and we must use more corroborating data and scrutinizing the data among trends and the volatile monthly data.&nbsp; This has given rise to the more artistic aspect of viewing the markets than how we may have in the past.&nbsp; This is why one&rsquo;s prediction for the markets may differ completely from another while looking at the exact same data.&nbsp; As such, the importance of the rationale for why one may feel a certain way about the markets is as important as the actual conclusion.&nbsp; From understanding the rationale, perhaps better decisions can be made and help investors avoid &ldquo;investment paralysis.&rdquo; &nbsp;Now, more than ever, beauty is in the eye of the beholder.</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the <a href="http://www.aamlive.com/legal/commentary-disclosures/">disclosures</a> webpage for additional risk information. For additional commentary or financial resources, please visit <a href="http://www.aamlive.com/blog">www.aamlive.com/blog</a>.</em></p>b99a106d-e8d0-4e60-a804-841fe3b823d4http://www.aamlive.com/blog/201204/a-brief-update-on-real-estate-investment-trusts REITsConfluenceMarket CommentaryU.S. EconomyReal Estate Investment Trusts (REITs) continue to have a year-to-date (YTD) positive return of 5.5% through February (Morgan Stanley Capital International US REIT Index).<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/VgodX5ghn_s" height="1" width="1"/>Thu, 12 Apr 2012 18:10:53 Z<p><strong>1) </strong><strong>Real Estate Investment Trusts (REITs) continue to have a year-to-date (YTD) positive return of 5.5% through February (Morgan Stanley Capital International US REIT Index). </strong><strong>&nbsp;</strong></p> <blockquote> <p>a) We believe there are some positive signs regarding economic recovery. If an economic recovery occurs, REITs are positioned for operational growth organically and via acquisitions. </p> </blockquote> <blockquote> <p>b) If the economy recovers, a large risk to the REIT equities would be sector rotation as investors may move to higher risk assets. &nbsp;</p> </blockquote> <p>&nbsp;</p> <p><strong>2)</strong> <strong>Capital Raising Update:</strong> </p> <blockquote> <p>a) Capital continues to be available to REITs. &nbsp;</p> </blockquote> <blockquote> <p>b) The Initial Public Offering (IPO) market continues to be jammed with registration statements, but few IPOs are pricing or even coming to market.&nbsp;&nbsp; &nbsp;</p> </blockquote> <blockquote> <p>c) The preferred market continues to issue equity, as more preferred shares were issued in the first 2 months of 2012 than the entire second half of 2011. &nbsp;</p> </blockquote> <p>&nbsp;</p> <p><strong>3)</strong> <strong>Acquisition Updates:</strong> </p> <blockquote> <p>a) We believe REITs will continue to see acquisition opportunities in the future. We see positive signs have emerged that banks are beginning to dispose of their real estate assets on their balance sheet. </p> </blockquote> <blockquote> <p>b) Public-to-public transactions (When a publicly traded company acquires another publicly traded company, with cash or stock or some combination of the two.) are occurring but are showing signs of slowing down, especially in the healthcare sector. Signs point that debt is available to private buyers. Some REITs indicated that they may be sellers in certain markets if capitalization rates are attractive.&nbsp;&nbsp; &nbsp; </p> </blockquote> <blockquote> <p>c) Government-Sponsored Enterprise (GSE) availability for certain asset classes, such as multi-family and student housing, has lowered the cost of debt for certain REITs. This cost of debt is causing cap rate compression in these asset classes, causing targets to be highly priced. The GSE cost of capital is showing some signs of rising. </p> </blockquote> <p>&nbsp;</p> <p><em>Past performance does not guarantee future performance.</em></p> <p><em>&nbsp;</em></p> <blockquote> <p>d) Transaction velocity appears to be increasing. Levels are still far below the 2005-2007 acquisition levels. REITs are comparing the current acquisition market as 2005 price levels without the liquid market.&nbsp;&nbsp; &nbsp;</p> </blockquote> <p>&nbsp;</p> <p><strong>4)</strong><strong> Valuation:</strong></p> <p>a) REITs have had a great return YTD, up 5.5% so far.&nbsp; Multiples have expanded with the rise of stock prices. </p> <p>b) &nbsp;We expect REIT operational fundamentals to grow into the multiples if an economic recovery occurs.&nbsp;&nbsp; &nbsp;</p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>www.aamlive.com/blog/about/disclosures</em></a><em>. For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/blog"><em>www.aamlive.com</em></a><a href="http://www.aamlive.com/blog"><em></em></a></p> <p><a href="http://www.aamlive.com/blog"><em><br /> </em></a></p> <p><em>The information contained herein is obtained from Confluence Investment Management LLC and believed to be reliable. The information is not warranted as to completeness and accuracy and is subject to change without notice. The foregoing has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security.</em></p> <p>&nbsp;</p> <p><em>Advisors Asset Management, Inc (AAM) and Confluence Investment Management LLC are not affiliated and the views expressed in this commentary are not necessarily that of AAM.</em></p> <p>&nbsp;</p> <p><em>Confluence Investment Management LLC is the Portfolio Consultant to the Confluence Hard Assets Unit Investment Trust. The Portfolio Consultant is not an affiliate of Advisors Asset Management, Inc. (AAM), the sponsor of this trust. </em></p>da672ae9-4fb0-45b3-a276-7a8b377946e3http://www.aamlive.com/blog/201204/peroni-report---april-wait-five-minutes healthcareGene PeroniFDAPeroni ReportDJIAFeaturedEquity MarketsMarket CommentaryEquity MarketsA correction of substantial magnitude has been elusive so far this year.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/mEcTqUmWWg8" height="1" width="1"/>Wed, 11 Apr 2012 15:43:46 Z<p><strong>DJIA:&nbsp; 12929.59</strong></p> <p>A correction of substantial magnitude has been elusive so far this year.&nbsp; The last significant stock market correction occurred in late November and from that point the DJIA climbed nearly 1700 points mostly unchallenged through the end of March.&nbsp; I have presented the argument that the stock market may not be subject to a steep and sustained retreat for now because of the routine rotational trading actions which have addressed near-term price and sentiment excesses in individual stocks and industry sectors.&nbsp; While this continues to be the case, some technical signs have persisted that indicate a pullback might be likely near term.&nbsp; While retreat to the DJIA&rsquo;s 200-day moving average qualifies as a relatively &lsquo;shallow&rsquo; retreat based on the gains since the intraday lows of the fourth quarter (October 4^th), it might serve investors to be somewhat restrained until there is greater assurance that the market can hold in the DJIA mid-12000 area.&nbsp; One concern that I have is that the CBOE Volatility Index (VIX- 18.81) appears to be in an intermediate bottoming trend that could launch a short-term move to the low/mid 20&rsquo;s.&nbsp; This could equate to a temporary breach of short-term support in the Dow.</p> <p>Recent flat-topping at the DJIA 13,200K area served as a signal that the market&rsquo;s upward momentum was ebbing.&nbsp; This became a more considerable development near term based on the recent pullback in the Dow Jones Transportation Average (DJTA).&nbsp; The DJTA had led the DJIA higher from the start of 2012, but in early February a changeover occurred and the Transports now trail the Industrials by more than 270 basis points.&nbsp; Dow Theorists may be understandably cautious about this turnaround but I do not believe it is a deal breaker for significantly higher stock levels by year end.&nbsp; It may be more relevant in today&rsquo;s economy to consider the leadership stature of the consumer discretionary and manufacturing sectors.&nbsp;&nbsp; In both of these areas, the leadership trends are well-established longer term and serve as pillars of the market&rsquo;s durability and elasticity.&nbsp; Also, since there have been very rotational sector consolidations in the market thus far in 2012, I believe transportation stocks are attractive rebound candidates.&nbsp; Transports have maintained a commanding lead over the Industrials since the pivotal March 2009 bottom, so the recent underperformance may prove to be only a temporary development.</p> <p>If you don&rsquo;t like the weather, wait five minutes.&nbsp; This is a popular southern resort land saying.&nbsp; This year&rsquo;s market may have its &lsquo;moments&rsquo; where a variation of this saying rings true.&nbsp; That is, while net money flow trends suggest money is staying in the market, it is simply vacillating quickly from sector to sector as a group either becomes transiently overbought or oversold.&nbsp; On the surface, these rotations might seem to indicate tired leadership.&nbsp; But, a sampling of stocks representing the most established market leadership in this cycle finds that pullbacks are providing constructive consolidations that are holding near their short-term support trendlines. At this writing, there is scant technical evidence that the market&rsquo;s leadership is shifting markedly.&nbsp; It did not change following the 2007-2008 financial-led bear market and I doubt there will be a major shift before completion of this cycle. &nbsp;Therefore, investors should not be discouraged because a category king falls off the leader board.&nbsp; Chances are it will be back in the leadership fold with some patience.&nbsp; Trying to anticipate or participate in near-term volatility could be a losing proposition.&nbsp; Heed those famous words of Peter Lynch: &ldquo;It&rsquo;s not timing the market; it&rsquo;s time in the market.&rdquo;&nbsp; The internal technical characteristics of this market suggest that this is good advice at this juncture.&nbsp; I continue to find the chart patterns attractive based on their depictions of historically strong price architecture (cup and handle formations).&nbsp; These formations have been reinforced by the market&rsquo;s routine self-policing exercises.&nbsp; Based on my technical observations, stocks are not over-extended and the risk/reward ratio is not substantially less attractive today than it was near the start of the first quarter.</p> <p>The health care sector performed well in the first quarter extending its nine-year leadership run.&nbsp; Some questions have been raised recently about the outlook for this sector based on the Supreme Court&rsquo;s pending ruling on certain components of President Obama&rsquo;s health care program.&nbsp; The consensus among political observers and industry analysts is that it will be a close decision.&nbsp; As for the market&rsquo;s interpretation, the outcome may not have a lasting or dramatic consequence.&nbsp; The technical behavior of many stocks representing sub-sectors of health care from large-cap pharmaceuticals to mid-cap biotechs, and from larger-cap laboratory testing to mid-cap medical devices, remains bullish.&nbsp; The structure and foundation of these bullish patterns are such that they are likely to withstand a possible negative knee-jerk reaction following the Court&rsquo;s decision.&nbsp; Heath care was once regarded as a defensive-growth investment but today its profile is skewed toward moderately aggressive growth. Naturally, some areas of healthcare are subject to the uncertainties of FDA approvals, inclusions in Medicare programs or pipeline prospects.&nbsp; Therefore, it may be advisable to incorporate a strategically diversified portfolio of health care stocks to mitigate severe reactions to unforeseen developments that might impact an individual company.</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the <a href="http://www.aamlive.com/legal/commentary-disclosures/">disclosures</a> webpage for additional risk information. For additional commentary or financial resources, please visit <a href="http://www.aamlive.com/blog">www.aamlive.com/blog</a>.</em></p>027575b6-6a0d-4bdd-a1c5-14272d2d5d83http://www.aamlive.com/blog/201204/stronger-jobs-market-than-monthly-report-indicates jobsMatt LloydWall Street Journalequity marketsU.S. EconomyMarket CommentaryEquity MarketsIt’s about that time again for the “tug of war” between market apprehension and fundamental economic drivers.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/5ELXuktlsuk" height="1" width="1"/>Mon, 09 Apr 2012 19:43:46 Z<p>It&rsquo;s about that time again for the &ldquo;tug of war&rdquo; between market apprehension and fundamental economic drivers.&nbsp; The seasonal slowdown that has plagued the equity markets for the last two years appears to be looking for economic data to corroborate the additional purchases of equities.&nbsp; This pattern has also corresponded with a flight to the dollar in the form of U.S. Treasury purchases.&nbsp; Recently, the jobs data has given more fuel to this anxiety even though several other metrics seem to be showing a stronger jobs market than the monthly report gives us.&nbsp; </p> <p>&nbsp;</p> <p>We have reported on the average hours worked weekly, the average overtime hours over the long-term average, the sentiment corresponding to jobless claims and past consumer confidence numbers and the correlation between ADP numbers and private payroll gains.&nbsp; These metrics have been showing continued strength albeit in a nonlinear fashion.&nbsp; The two numbers that have loudly been stating a stronger employment future are the average hours worked weekly and the average overtime hours for both manufacturing and nondurable sector.&nbsp; Both showing gains at or above the long-term average translates to future gains via the stress put on existing workers.&nbsp; We feel we are at the point where productivity gains hit critical mass and only show marginal improvements.&nbsp; This is crucial in that if there is a slight lull in new orders, translation seasonal slowdown, margins and cash flow should see very little declines if not being maintained as hours worked by employees and other marginal costs can be scaled down to meet this new level of sales.&nbsp; </p> <p>&nbsp;</p> <p>To further affirm our view on the significant opportunity we have seen and continue to see in the equity markets, an article from the Wall Street Journal details some significant improvements in the S&amp;P 500.&nbsp; Consider the following six metrics as measured from the Wall Street Journal article, <a href="http://online.wsj.com/article/SB10001424052702303815404577331660464739018.html">For Big Companies, Life is Good</a>, which measures gains since the end of 2007.</p> <p>&nbsp;</p> <table cellspacing="0" cellpadding="0" border="0"> <tbody> <tr> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>&nbsp;</strong></p> </td> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>% change since 2007 - 2011</strong></p> </td> </tr> <tr> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>Net Income</strong></p> </td> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>+22.7%</strong></p> </td> </tr> <tr> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>Employees</strong></p> </td> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>+5.1%</strong></p> </td> </tr> <tr> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>Cash</strong></p> </td> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>+49.4%</strong></p> </td> </tr> <tr> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>Revenue</strong></p> </td> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>+17.1%</strong></p> </td> </tr> <tr> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>Revenue per employee</strong></p> </td> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>+11.4%</strong></p> </td> </tr> <tr> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>Capital Spending</strong></p> </td> <td valign="top" style="width: 319px;"> <p style="text-align: center;"><strong>+16.3%</strong></p> </td> </tr> </tbody> </table> <p>*Per the article, most employment gains were outside the United States and cash reserves have increased by $1.2 trillion since 2007.</p> <p>&nbsp;</p> <p>We have continued to see the cash flow per share as being a significant driver of equity market returns in the future.&nbsp; This could be done via increased stock buybacks and increases in capital spending&nbsp;(specifically through technology upgrades and increased mergers and acquisitions).&nbsp;Perhaps the biggest benefit (as it compares to the current low yield environment) from all this excess cash could be an increase in dividends declared by companies from nearly every industry and size.&nbsp; Consider that these gains are greater than the end of 2007, while the S&amp;P 500 is still roughly 6% below 2007 levels.&nbsp; While a correction can always take place at any time for any number of extraneous reasons, the main metrics of growth and value continue to point to current discounts.&nbsp; </p> <p>&nbsp;</p> <ul> <li>The P/E (price-earnings ratio) multiple at current levels stands at 14.31x, while the last 25-year average stands at 19.4x; a 26% discount.</li> <li>The book value multiple currently stands at 2.25x, while the last 20-year average stands at 3.06x; a 26% discount.</li> <li>The cash flow multiple currently stands at 7.87x, while the last 15-year average stands at 12.3x; a 36% discount.</li> </ul> <p>&nbsp;</p> <p>While these discounts don&rsquo;t necessarily mean the market shoots straight up, it does relay a sense of optimism for increasing allocations in the case of any significant sell off.&nbsp; </p> <p>&nbsp;</p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the <a href="http://www.aamlive.com/legal/commentary-disclosures/">disclosures</a> webpage for additional risk information. For additional commentary or financial resources, please visit <a href="http://www.aamlive.com/blog">www.aamlive.com/blog</a>.</em></p>46b4a14d-8b71-4c72-81a0-49c168fa1e37http://www.aamlive.com/blog/201204/an-attractive-entry-point-for-the-commercial-real-estate-asset-class Casey Frazierreal estateMarket CommentaryU.S. EconomyGuest blogger, Casey Frazier of Versus Capital Advisors, LLC shares his insights on the commercial real estate asset class.<img src="http://feeds.feedburner.com/~r/AamLiveBlog/~4/C-mzNmRJuoQ" height="1" width="1"/>Wed, 04 Apr 2012 20:05:23 Z<p><strong>By Casey Frazier, CFA, Chief Investment Officer </strong>- <a href="http://versuscapital.com/">Versus Capital Advisors, LLC</a></p> <p><a href="http://versuscapital.com/" target="_blank"><img src="http://www.aamlive.com/images/blog/versus.jpg?sfvrsn=2" title="versus" style="float: left;" /></a>Given the great start for the equity markets in 2012 with the Dow Jones Industrial Average and Standard &amp; Poor's 500 Index delivering their best first quarters since 1998, I have been asked &ldquo;What are your expectations for the real estate sector over the next 12-18 months?&rdquo;&nbsp; </p> <p>I expect commercial real estate fundamentals to remain solid and to continue to improve over this time period as economic fundamentals continue to improve.&nbsp; Unlike the equity markets, where improving economic conditions (lower unemployment, increased consumer spending and higher consumer confidence reported during the quarter) and record profits (U.S. corporate operating earnings were up 15 percent in 2011) have had a swift and positive impact on the market, commercial real estate fundamentals should be slower to react. </p> <p>An improving economic climate has led to occupancy growth in the commercial real estate sector, but has yet to lead to rental growth in most property types and most markets, in my opinion. I expect the demand for commercial real estate to grow over the next five years, and as demand growth increases, revenues in this sector should also increase.&nbsp; New supply in commercial real estate has been at historic lows for the last three years.&nbsp; I anticipate the new supply of real estate will stay muted over the next five years because of the dearth of financing available for commercial real estate development projects as well as occupancy and rental rates that do not justify new development projects in most property types and markets. &nbsp;With demand for commercial real estate improving and limited new supply for the foreseeable future, I believe that the current environment represents an attractive entry point for investors with a medium to long-term view (also outlined in AAM&rsquo;s blog post, <a href="http://www.aamlive.com/blog/201201/the-strategic-times-year-in-review-looking-ahead">The Strategic Times: Year in Review &amp; Looking Ahead</a>). In addition, I believe that the real estate sector is attractively valued relative to most other asset classes for long-term investors. The current low-interest rate environment can make commercial real estate, with its significant income component, appealing. In addition, while many other asset classes have rebounded to peak or near peak levels, direct real estate is still below peak prices. If you combine these attributes with the tangible nature of the asset class, which historically has been attractive in times of capital market and economic uncertainty, I think you end up with a solid case for investing in commercial real estate for the appropriate investor.&nbsp;&nbsp; </p> <p>My view on the sector is echoed by a recent Urban Land Institute (ULI) survey of 38 leading real estate economists and analysts from across the United States that projects broad improvements for the nation&rsquo;s economy, real estate capital markets, real estate fundamentals and the housing industry through 2014. </p> <p>The following excerpts were taken from the press release on the survey, to read the entire press release please click here: (<a href="http://www.uli.org/sitecore/content/ULI2Home/News/PressReleases/Archives/2012/2012PressReleases/RealEstateConsensusSurveyMarch.aspx" target="_blank">March Real Estate Consensus Survey</a>)</p> <p>&ldquo;The survey results show reason for optimism throughout much of the real estate industry. Over the next three years: </p> <ul style="list-style-type: disc;"> <li>Commercial property transaction volume is expected to increase by nearly 50 percent </li> <li>Issuance of commercial mortgage-backed securities (CMBS) is expected to more than double </li> <li>Institutional real estate assets and real estate investment trusts (REITs) are expected to provide returns ranging from 8.5% to 11% annually </li> <li>Vacancy rates are expected to drop in a range of between 1.2 and 3.7 percentage points for office, retail, and industrial properties and remain stable at low levels for apartments; while hotel occupancy rates will likely rise </li> <li>Rents are expected to increase for all property types, with 2012 increases ranging from 0.8 percent for retail up to 5.0 percent for apartments; </li> <li>Housing starts will nearly double by 2014, and home prices will begin to rise in 2013, with prices increasing by 3.5% in 2014 </li> </ul> <p>These strong projections are based on a promising outlook for the overall economy.&rdquo; </p> <p>&ldquo;While the ULI Real Estate Consensus Forecast suggests that economic growth will be steady rather than sporadic, it must be viewed within the context of numerous risk factors such as the continuing impact of Europe&rsquo;s debt crisis; the impact of the upcoming presidential election in the U.S. and major elections overseas; and the complexities of tighter financial regulations in the U.S. and abroad, said ULI Chief Executive Officer Patrick L. Phillips. &ldquo;While geopolitical and global economic events could change the forecast going forward, what we see in this survey is confidence that the U.S. real estate economy has weathered the brunt of the recent financial storm and is poised for significant improvement over the next three years. These results hold much promise for the real estate industry.&rdquo; <br /> <br /> More information on the survey can be found at:&nbsp; <a href="http://www.uli.org/">http://www.uli.org</a>. </p> <p>&nbsp;</p> <p><em>This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>Disclosures</em></a><em> webpage for additional risk information at </em><a href="http://www.aamlive.com/legal/commentary-disclosures"><em>www.aamlive.com/blog/about/disclosures</em></a><em>. For additional commentary or financial resources, please visit </em><a href="http://www.aamlive.com/blog"><em>www.aamlive.com</em></a> </p> <p><br clear="all" /> <em>The information contained herein is written by Versus Capital Advisors, LLC and is believed to be reliable. The information is not warranted as to completeness and accuracy and is subject to change<em> </em></em><em>without notice. The foregoing has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security.</em></p> <em>Advisors Asset Management, Inc. (AAM) and Versus Capital Advisors, LLC are not affiliated and the views expressed in this commentary are not necessarily that of AAM. Versus Capital Advisors, LLC is the investment adviser of the Versus Capital Multi-Manager Real Estate Income Fund. AAM is the sub-distributor for the Fund.</em>