Fund managers are generally an optimistic lot, especially in the midst of a bull market, but even more so at the start of each new year. The turning of the calendar has become a popular time for introspection, an appraisal of what might have gone wrong — a lot for active managers in 2014 — and, unfortunately, predictions.
The ubiquitous “Top Ten” lists, while generally entertaining and occasionally thoughtful, are as much marketing pitches as they are serious reading. Byron Wein did not disappoint this year and his 2015 prognostications include a resignation from Russian president Vladimir Putin and a strong comeback for US high-yield debt. For his part, Janus bond fund manager Bill Gross, CFA, recently declared (not for the first time), “The good times are over.” Previously, Wall Street Journal columnist Jason Zweig pointed out the marginal utility of annual forecasts, echoing the advice of the late economist Edgar Fiedler, who once said, “If you have to forecast, forecast often.”
As 2015 begins, global equity markets face the proverbial “wall of worry.” The strengthening US economy stands in sharp contrast to ongoing malaise in most of Europe (and renewed worries of a “Grexit”), recession in Japan, and a slowdown in China and emerging markets. Commodity prices, most notably oil, reflect both a supply glut and slackening demand, and this weakness is hammering the economies of Russia and most other oil-producing nations. Geopolitical conflicts show no signs of abating, and the strong dollar will pressure the revenues and margins of US multinationals.
Stock market investors have come to rely on the support of accommodative central banks and, for now, a safe forecast seems to be for more of the same in the year ahead.
Below are some other stories that caught my eye in recent weeks.
Strategic Thinking
- According to San Francisco Fed research on demographics and equity values, the P/E ratio for US stocks could be halved by 2025. (Federal Reserve Bank of San Francisco)
- In "Busting the Myth about Size," the risk-adjusted performance advantage for small stocks is called into question. (Research Affiliates)
- According to Jim Grant, history suggests that sometimes the best economic stimulus is none at all. (Wall Street Journal)
- Active managers might benefit from the rise of passive investing. (Chief Investment Officer)
Shareholder Values
- "Is There Such a Thing as 'Intrinsic value?'” (Bason Asset Management)
- "What Is Intrinsic Value, and Who Decides It?" (Philosophical Economics)
- Holman Jenkins weighs in on the concept of shareholder value maximization. (Wall Street Journal)
- Cliff Asness says the idea of maximizing shareholder value is imperfect but not “the world’s dumbest idea.” (AQR Capital Management)
Oil Patch
- Winners and losers of cheap oil. (Financial Times)
- Aswath Damodaran on the oil price shock effects. (Musings on Markets)
- Howard Marks, CFA, on "The Lessons of Oil" (Oaktree Capital, PDF)
- Christopher Whalen on the downside of cheap oil. (The National Interest)
Disruption and Innovation
- "Putting a Price on Innovation" (68th CFA Institute Annual Conference)
- "Graphene may be the most remarkable substance ever discovered." (The New Yorker)
- "The World's Biggest Car Company Wants to Get Rid of Gasoline" (Businessweek)
The Future of Finance
- "Global Market Sentiment Survey" (CFA Institute, PDF)
- James Stewart on "the morass of insider trading." (The New York Times)
- "Wall Street's Big Problem in 2015" (CNBC)
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author's employer.
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