Tuesday, March 5, 2013
Friday, June 15, 2012
Dad: The Ultimate Business Partner
My Dad died suddenly on December 5th 2011, after battling various effects from cancer and kidney surgery. I was in my late 40’s with a wife and young son. This is not an ode to my father as the greatest Dad ever, but rather a realization of what I now understand as the role of “Dad” in my life and perhaps their (our) role in society.
As I reflected on my relationship with my Dad, I was inspired to share and recount my (our) journey at his funeral. My dad was tall and distinguished, a “corporate man”, proper, polite, and cultured; some might even say a sort of “cool nerd”. He was old school in his views, yet liberal and accepting of others. In fact the most common description from those who knew him was that he was a good listener. Good in the sense that he cared what you were saying and asked questions. No matter how mundane the topic, he was very interested, almost enthusiastic when recounting the conversations he had with others.
Born during the depression, and raised by a single Mom, his story is common in America of a generation (or 2) ago. He didn’t speak of his childhood much, just enough to share some of his experiences. His generation didn’t use their upbringing as excuses for anything; their childhoods were what they made out of it or perhaps what they imagined it was. Life back then began when you became more of an adult. In the case of my dad, his memories really began when he got married, had kids and entered Corporate America. It is there where he felt he belonged the most, at least according to his own view.
But again this is not a story of a man, but the progression of a relationship with Dads.
Growing up in typical upper middle class suburbia, I guess I was as self-indulged as most kids. Parents were there to provide for their children’s needs and desires and pretty much stay out of the way.
Most of the care-giving early on was from the Mom and the Dad was the disciplinarian and lesson teacher. Back in the late 60’s and 70’s, Dads were there for the traditional male gender tasks like building a tree house, barbequing, going to a ballgame or playing catch in the back yard. My Dad was exceptionally handy, he built a full on movie theatre in our basement (by hand), with projection booth, movie seats and this was all before “home theaters” were even a concept. However, what he thrived at in the work shop he lacked in sports. Playing, watching and talking.
It is now clear to me that the early part of childhood is centered around Mother. She is the care giver, satisfying your survival needs. The activities of making dinner, grocery shopping (with boy in cart), bathing, and reading all give Moms a predominate role. As a child I was not sure about how I felt about my Dad. Sure I loved him and even respected him but young children do not bond with Dads like they do with Moms.
I am well aware that today’s generation might take issue with my stereotypical account as Dads being clearly more involved these days. However, that is not my point.
I perceived my Dad as the protector, bread winner, or a superman who would risk his life for mine. This made me feel good and secure but was not the foundation for any relationship. In fact, as I grew into my early teens I found I had continuously less in common with my Dad and very little interest to build a relationship. But it is at this time in life that the care giving from Mom was less essential, and we too drifted apart in what was natural “coming of age” in typical suburban America. As life experiences crept up on me I turned to my Dad more and more. Maybe for his wisdom, maybe it was gender identification but we began to talk more. To be clear we had very different interests. I was less accepting of his passions as they seemed boring and “un cool”. He was none the less tolerant, although a bit inquisitive of mine. He controlled the purse strings and car keys so I was at least respectful (most of the time).
In my 20’s we talked more, found some common interests, had predefined roles in the family and I saw him as a person not just my Dad. It was obvious he had life experiences that I was having. These were not revelations but the typical experiences: buying a car or condo, getting a job, and just participating in society. Subconsciously I was learning or even you might say being mentored by him. It was clear that much of what I was about to do (or do at some point) in traditional evolution of becoming an adult he had done already. Maybe well, or maybe in a way I would not mimic or even approve of, but he went through it. That knowledge is important on a psychological level. Seeing someone survive or better yet thrive gives you confidence. The presence of my Dad in retrospect was empowering.
To that extent I was very lucky, during the last several years of his life he came to my office on a regular basis, he smiled and laughed with my colleagues and offered his advice on growing and running the business. Often this frustrated me reminisant of a kid whose Dad was hanging around too long while my friends were over. In fact there would be days we barely spoke as we both focused on our own tasks. However, knowing he was there was comforting in a way I only now know.
And now that my Dad is gone and I reflect on my first father’s day without him, I really feel like an adult. It is clear I have entered a new stage in my life with yet another lesson to learn - How to live in a world without his presence.
Rob Stein is the Global Head of Asset Management for Knight Capital Group, Inc. and the Chicago based Astor Asset Management, LLC. He is the author of three books, with his latest being The Bull Inside the Bear. He lives in Chicago with his wife and young son.
As I reflected on my relationship with my Dad, I was inspired to share and recount my (our) journey at his funeral. My dad was tall and distinguished, a “corporate man”, proper, polite, and cultured; some might even say a sort of “cool nerd”. He was old school in his views, yet liberal and accepting of others. In fact the most common description from those who knew him was that he was a good listener. Good in the sense that he cared what you were saying and asked questions. No matter how mundane the topic, he was very interested, almost enthusiastic when recounting the conversations he had with others.
Born during the depression, and raised by a single Mom, his story is common in America of a generation (or 2) ago. He didn’t speak of his childhood much, just enough to share some of his experiences. His generation didn’t use their upbringing as excuses for anything; their childhoods were what they made out of it or perhaps what they imagined it was. Life back then began when you became more of an adult. In the case of my dad, his memories really began when he got married, had kids and entered Corporate America. It is there where he felt he belonged the most, at least according to his own view.
But again this is not a story of a man, but the progression of a relationship with Dads.
Growing up in typical upper middle class suburbia, I guess I was as self-indulged as most kids. Parents were there to provide for their children’s needs and desires and pretty much stay out of the way.
Most of the care-giving early on was from the Mom and the Dad was the disciplinarian and lesson teacher. Back in the late 60’s and 70’s, Dads were there for the traditional male gender tasks like building a tree house, barbequing, going to a ballgame or playing catch in the back yard. My Dad was exceptionally handy, he built a full on movie theatre in our basement (by hand), with projection booth, movie seats and this was all before “home theaters” were even a concept. However, what he thrived at in the work shop he lacked in sports. Playing, watching and talking.
It is now clear to me that the early part of childhood is centered around Mother. She is the care giver, satisfying your survival needs. The activities of making dinner, grocery shopping (with boy in cart), bathing, and reading all give Moms a predominate role. As a child I was not sure about how I felt about my Dad. Sure I loved him and even respected him but young children do not bond with Dads like they do with Moms.
I am well aware that today’s generation might take issue with my stereotypical account as Dads being clearly more involved these days. However, that is not my point.
I perceived my Dad as the protector, bread winner, or a superman who would risk his life for mine. This made me feel good and secure but was not the foundation for any relationship. In fact, as I grew into my early teens I found I had continuously less in common with my Dad and very little interest to build a relationship. But it is at this time in life that the care giving from Mom was less essential, and we too drifted apart in what was natural “coming of age” in typical suburban America. As life experiences crept up on me I turned to my Dad more and more. Maybe for his wisdom, maybe it was gender identification but we began to talk more. To be clear we had very different interests. I was less accepting of his passions as they seemed boring and “un cool”. He was none the less tolerant, although a bit inquisitive of mine. He controlled the purse strings and car keys so I was at least respectful (most of the time).
In my 20’s we talked more, found some common interests, had predefined roles in the family and I saw him as a person not just my Dad. It was obvious he had life experiences that I was having. These were not revelations but the typical experiences: buying a car or condo, getting a job, and just participating in society. Subconsciously I was learning or even you might say being mentored by him. It was clear that much of what I was about to do (or do at some point) in traditional evolution of becoming an adult he had done already. Maybe well, or maybe in a way I would not mimic or even approve of, but he went through it. That knowledge is important on a psychological level. Seeing someone survive or better yet thrive gives you confidence. The presence of my Dad in retrospect was empowering.
To that extent I was very lucky, during the last several years of his life he came to my office on a regular basis, he smiled and laughed with my colleagues and offered his advice on growing and running the business. Often this frustrated me reminisant of a kid whose Dad was hanging around too long while my friends were over. In fact there would be days we barely spoke as we both focused on our own tasks. However, knowing he was there was comforting in a way I only now know.
And now that my Dad is gone and I reflect on my first father’s day without him, I really feel like an adult. It is clear I have entered a new stage in my life with yet another lesson to learn - How to live in a world without his presence.
Rob Stein is the Global Head of Asset Management for Knight Capital Group, Inc. and the Chicago based Astor Asset Management, LLC. He is the author of three books, with his latest being The Bull Inside the Bear. He lives in Chicago with his wife and young son.
Wednesday, May 23, 2012
Through the Economic Lens: 2012 Looks More Like 2010
By Rob Stein
The recent selloff in the market, with nervous investors made all the more so because of the media’s obsession with financial issues in Europe, is renewing talk about bear markets and recessions as people head for cover. In the midst of their misguided fears of a contagion effect, there is also concern about the “fiscal cliff,” spending cuts and higher tax rates that, at this point, will take effect on January 1. (Funny how that sounds like it would be a good idea for our debt problem.)Looking at recent events through an economic lens makes things much clearer to see and understand. The recent deviation between economic data and market performance—whereby the economy slowed and even contracted, but the market appreciated—was highly unusual. The explanation (read: excuse) is most likely the mildness of the contraction compared to the severity of the 2008 economic disaster combined with highly unusual central bank actions. This rare outlier, however, does not make a trend. As the current economic data and sentiment continue to show improvement, we need to see market fluctuations and overreactions to events that do not materially impact our economy as just that: fluctuations and overreactions.
The short-term economy reminds me of Q2 2010 when concern over Europe and a flash crash had investors heading for the sidelines with the events of 2008 fresh in their minds. Unlike 2008, however, the economy in 2010 was growing, not slowing. The market, which ultimately took its cue from the underlying economic trend, also improved over the next few quarters. In fact, by the time we got to Q2 2011, the market was up 18% from Q2 2010.
The opposite occurred in 2011, as the market responded to the Japanese tsunami, debt problems here and abroad, and a faltering economic expansion. The economy, based on our analysis, was slowing and even contracting in 2011. With all that turmoil over the last 12 months, there is about a 30% differential between the high and the low. But if you compare where we are at Q2 2012 (for example, as of May 14, 2012), versus Q2 2011, the market is only slightly lower. That kind of volatility made the timing of portfolio shifts over the past 12 months more statistically significant than before. However, that is unlikely to continue.
In other words, the impact of timing will be less relevant to longer term performance. Of far greater importance, especially to Astor’s economics-based investing approach, is that the data suggest improvements in the economy are sustainable. Equity prices will most likely be higher this time next year—not because of arbitrary price levels today, but because the economy’s sustainability will likely produce steadily higher values.
Astor portfolios have experienced lower volatility from our high to our low, but unfortunately we are not basis points from levels one year ago. However, we are confident that our portfolios are positioned to perform over the next few quarters to be well above current levels and with less volatility.
The Euro turmoil and the financial cliff will likely cause the market to be volatile, but when looking at economic factors, we believe that 2012 looks more like 2010 (when the economy was growing) than 2011 (when it was slowing/contracting). As a result, we would also anticipate this year will produce returns in line with 2010, as well.
All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice or services in any state where to do so would be unlawful. Past results are no guarantee of future results and no representation is made that a client will or is likely to achieve results that are similar to those shown. Please refer to Astor’s Form ADV, Part 2 for additional information and risks. Analysis and research are provided for informational purposes only, not for trading or investing purposes. Astor and its affiliates are not liable for the accuracy, usefulness or availability of any such information or liable for any trading or investing based on such information. There is no assurance that the Astor’s investment programs or funds will produce profitable returns, you may lose money. (304121-284)
Tuesday, April 24, 2012
An Apple a Day?
First off, I must confess that I am not one who analyzes individual stocks or has the aptitude (read: patience) to review P/E ratios, growth rates, and the like. However, as an economist who constantly reviews statistics, there are current elements of Apple’s valuation that deserve comment from a broader perspective.
In the interest of full disclosure, I have Apple products, and most likely will purchase additional Apple gadgets at some point in the future. They are not my favorites, but nonetheless, they are part of my technology wardrobe. To this point, however, I can live without my Apple products. In fact, during a recent trip to the West Coast, I was forced to work without an iPad or an iPhone, relying only on my Blackberry and my laptop. And I was - yes, it’s true - just fine.
An Apple a day, it seems, is not what the doctor ordered. Although Apple’s products are cool and life-improving, they are not life-sustaining. I don’t mean this as a shot at Apple, but rather at society. We can get along without i-This and i-That. A recent poll asked people if they would rather have an iPad or a share of Apple stock, which at the time was trading over $600 a share. My answer, although not one of the choices, would be, “Give me the 600 bucks!”
Therein lies the “core” of this story. Apple hit a market cap of $600 billion, which is equivalent to $2,000 for every man, woman, and child in America, or almost 5% of GDP. Hmmm. It just seems doubtful and even mathematically unlikely that this market cap could be sustained, even as Apple continues to sell cool products, generate profits, and hoard cash.
It reminds me of trend extrapolations made in years past. When I was in grade school, I heard warnings about the population explosion, how there would be no room left in the country. On that West Coast trip, however, as I looked out the window, I saw a great deal of open, unpopulated space.
In fact, U.S. population, which reached 308.7 million people in 2010, was up 9.7% over the previous decade, a slower growth rate than in the past. Add in the aging of the baby boomers and a few other demographic facts, and the U.S. could see a significant decline not only in its growth rate but in its overall population in the decades ahead, according to the U.S. Census Bureau. (Probably not a good head wind for Apple stock).
When I was in college, the student body attended an emergency health meeting on campus to discuss the AIDS crisis. The moderator told us, “Look to your right, to your left, in front of you, behind you. One of these four people will die of AIDS by the end of the decade.” Thankfully, that forecast was wrong.
My point is, we can’t take past trends, positive or negative, and project them on the same trajectory for the foreseeable future. In other words, apple trees grow--but not to the sky.
From where I sit, Apple is a fine stock and will probably perform like most other fine stocks, which are mostly influenced by the overall market movement. As readers who follow Astor’s philosophy, you will recall I believe that the equity market is influenced by economic fundamentals.
Will Apple continue its exponential performance of the past? Not very likely. In fact, I would not be surprised if it regresses a bit to the mean.
All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice or services in any state where to do so would be unlawful. Past results are no guarantee of future results and no representation is made that a client will or is likely to achieve results that are similar to those shown. Please refer to Astor's Form ADV, Part 2 for additional information and risks. Analysis and research are provided for informational purposes only, not for trading or investing purposes. Astor and its affiliates are not liable for the accuracy, usefulness or availability of any such information or liable for any trading or investing based on such information. There is no assurance that the Astor’s investment programs or funds will produce profitable returns, you may lose money. (300001-263)
In the interest of full disclosure, I have Apple products, and most likely will purchase additional Apple gadgets at some point in the future. They are not my favorites, but nonetheless, they are part of my technology wardrobe. To this point, however, I can live without my Apple products. In fact, during a recent trip to the West Coast, I was forced to work without an iPad or an iPhone, relying only on my Blackberry and my laptop. And I was - yes, it’s true - just fine.
An Apple a day, it seems, is not what the doctor ordered. Although Apple’s products are cool and life-improving, they are not life-sustaining. I don’t mean this as a shot at Apple, but rather at society. We can get along without i-This and i-That. A recent poll asked people if they would rather have an iPad or a share of Apple stock, which at the time was trading over $600 a share. My answer, although not one of the choices, would be, “Give me the 600 bucks!”
Therein lies the “core” of this story. Apple hit a market cap of $600 billion, which is equivalent to $2,000 for every man, woman, and child in America, or almost 5% of GDP. Hmmm. It just seems doubtful and even mathematically unlikely that this market cap could be sustained, even as Apple continues to sell cool products, generate profits, and hoard cash.
It reminds me of trend extrapolations made in years past. When I was in grade school, I heard warnings about the population explosion, how there would be no room left in the country. On that West Coast trip, however, as I looked out the window, I saw a great deal of open, unpopulated space.
In fact, U.S. population, which reached 308.7 million people in 2010, was up 9.7% over the previous decade, a slower growth rate than in the past. Add in the aging of the baby boomers and a few other demographic facts, and the U.S. could see a significant decline not only in its growth rate but in its overall population in the decades ahead, according to the U.S. Census Bureau. (Probably not a good head wind for Apple stock).
When I was in college, the student body attended an emergency health meeting on campus to discuss the AIDS crisis. The moderator told us, “Look to your right, to your left, in front of you, behind you. One of these four people will die of AIDS by the end of the decade.” Thankfully, that forecast was wrong.
My point is, we can’t take past trends, positive or negative, and project them on the same trajectory for the foreseeable future. In other words, apple trees grow--but not to the sky.
From where I sit, Apple is a fine stock and will probably perform like most other fine stocks, which are mostly influenced by the overall market movement. As readers who follow Astor’s philosophy, you will recall I believe that the equity market is influenced by economic fundamentals.
Will Apple continue its exponential performance of the past? Not very likely. In fact, I would not be surprised if it regresses a bit to the mean.
All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice or services in any state where to do so would be unlawful. Past results are no guarantee of future results and no representation is made that a client will or is likely to achieve results that are similar to those shown. Please refer to Astor's Form ADV, Part 2 for additional information and risks. Analysis and research are provided for informational purposes only, not for trading or investing purposes. Astor and its affiliates are not liable for the accuracy, usefulness or availability of any such information or liable for any trading or investing based on such information. There is no assurance that the Astor’s investment programs or funds will produce profitable returns, you may lose money. (300001-263)
Monday, April 16, 2012
After the Speed Bump…
Slow down: Speed bump. After that, accelerate with care.
That’s the essence of our near-term economic outlook. Although a tapping of the brakes is likely, there is virtually no danger of going off the road. The economic engine, having finally gained some sustainable momentum, will probably keep moving at a slow and steady pace, with a general upward trend overall for the rest of the year.
But first, the speed bump. Looking ahead to the first GDP report for Q1 2011(advance estimate), scheduled to be released in late April, our expectation is for a slower pace of growth compared to the 3.0% gain logged in Q4 2011. There are already hints that the economy lagged early in 2012. The Institute for Supply Management (ISM) reported that its PMI national composite index had dropped in February 2012 to 52.4 from 54.1 in January. Earlier this month, it reported a one percentage point gain for March to 53.4, which was still below January levels.
The curious indicator has been jobs. Total nonfarm payroll employment rose by 120,000in March 2012, decreasing the unemployment rate to 8.2%. The rate of job growth did slow compared to average gains of 246,000 per month in the prior three months. Expectations for March had been for 210,000 jobs to have been added. Nonetheless, it’s important to keep perspective, given that the job market was gutted during the recession. There was a time we would have thrown a party for a jobs report of +120,000.
It is also highly probable that the comparatively stronger pace of hiring seen earlier this year reflected the fact that, during the recession, employers cut their payrolls too severely and needed to correct that situation during the early stages of recovery. As we move forward, we would look for employment to improve in pace with economic output.
The Fed, in its Beige Book report, called economic growth “modest to moderate” for the period of mid-February through the end of March. Manufacturing, professional business services, and consumer spending were positive, although rising petroleum costs sparked some concern, particularly the impact on discretionary spending—all the makings of a second-quarter speed bump.
Once we get beyond the speed bump, we would expect improvement, but not the classic recovery days of taking 10 steps forward and then 3 steps back. The pace of growth is more likely to be gradual; 2 or 3 steps forward and 1 back. This will most likely create some market corrections as well. Looking at the ranges for the S&P 500 over the past two or three years, we would expect current pullbacks to stay at the higher end of recent ranges. The pullbacks, however, will hopefully only be step-backs, and not an indication of deeper problems or the start of another recession.
We view the step backs that do materialize as opportunities to re-examine investment decisions. Although we never signal or discuss portfolio moves ahead of time, I will say that we are making more than a simple “buy the market” decision. With asset correlations, as I wrote in my previous blog, returning to more normal, historic relationships, we have an opportunity to make investment decisions across a spectrum of assets, which reflect our analyses and opinions for a variety of markets.
Longer term for the year, we would expect that uncertainty related to the presidential election to impact Q3. Then, as we move into Q4, we would seek to reap the fruits of the portfolio adjustments that we are making now.
All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice or services in any state where to do so would be unlawful. Past results are no guarantee of future results and no representation is made that a client will or is likely to achieve results that are similar to those shown. Please refer to Astor's Form ADV, Part 2 for additional information and risks. Analysis and research are provided for informational purposes only, not for trading or investing purposes. Astor and its affiliates are not liable for the accuracy, usefulness or availability of any such information or liable for any trading or investing based on such information. There is no assurance that the Astor’s investment programs or funds will produce profitable returns, you may lose money.
(303121-259)
That’s the essence of our near-term economic outlook. Although a tapping of the brakes is likely, there is virtually no danger of going off the road. The economic engine, having finally gained some sustainable momentum, will probably keep moving at a slow and steady pace, with a general upward trend overall for the rest of the year.
But first, the speed bump. Looking ahead to the first GDP report for Q1 2011(advance estimate), scheduled to be released in late April, our expectation is for a slower pace of growth compared to the 3.0% gain logged in Q4 2011. There are already hints that the economy lagged early in 2012. The Institute for Supply Management (ISM) reported that its PMI national composite index had dropped in February 2012 to 52.4 from 54.1 in January. Earlier this month, it reported a one percentage point gain for March to 53.4, which was still below January levels.
The curious indicator has been jobs. Total nonfarm payroll employment rose by 120,000in March 2012, decreasing the unemployment rate to 8.2%. The rate of job growth did slow compared to average gains of 246,000 per month in the prior three months. Expectations for March had been for 210,000 jobs to have been added. Nonetheless, it’s important to keep perspective, given that the job market was gutted during the recession. There was a time we would have thrown a party for a jobs report of +120,000.
It is also highly probable that the comparatively stronger pace of hiring seen earlier this year reflected the fact that, during the recession, employers cut their payrolls too severely and needed to correct that situation during the early stages of recovery. As we move forward, we would look for employment to improve in pace with economic output.
The Fed, in its Beige Book report, called economic growth “modest to moderate” for the period of mid-February through the end of March. Manufacturing, professional business services, and consumer spending were positive, although rising petroleum costs sparked some concern, particularly the impact on discretionary spending—all the makings of a second-quarter speed bump.
Once we get beyond the speed bump, we would expect improvement, but not the classic recovery days of taking 10 steps forward and then 3 steps back. The pace of growth is more likely to be gradual; 2 or 3 steps forward and 1 back. This will most likely create some market corrections as well. Looking at the ranges for the S&P 500 over the past two or three years, we would expect current pullbacks to stay at the higher end of recent ranges. The pullbacks, however, will hopefully only be step-backs, and not an indication of deeper problems or the start of another recession.
We view the step backs that do materialize as opportunities to re-examine investment decisions. Although we never signal or discuss portfolio moves ahead of time, I will say that we are making more than a simple “buy the market” decision. With asset correlations, as I wrote in my previous blog, returning to more normal, historic relationships, we have an opportunity to make investment decisions across a spectrum of assets, which reflect our analyses and opinions for a variety of markets.
Longer term for the year, we would expect that uncertainty related to the presidential election to impact Q3. Then, as we move into Q4, we would seek to reap the fruits of the portfolio adjustments that we are making now.
All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice or services in any state where to do so would be unlawful. Past results are no guarantee of future results and no representation is made that a client will or is likely to achieve results that are similar to those shown. Please refer to Astor's Form ADV, Part 2 for additional information and risks. Analysis and research are provided for informational purposes only, not for trading or investing purposes. Astor and its affiliates are not liable for the accuracy, usefulness or availability of any such information or liable for any trading or investing based on such information. There is no assurance that the Astor’s investment programs or funds will produce profitable returns, you may lose money.
(303121-259)
Monday, March 19, 2012
Regressing to the Mean: Asset Values Returning to Low Correlations
By Rob Stein
Asset values are finally marching, once again, to the beat of their own drummers. For portfolio managers and investors alike, this is a welcome change of tune.
Among the many investing challenges of the past few years—beyond the aftermath of a near-meltdown of the financial system and a global economy that went into a deep recession—was the high degree of correlation among different assets. Assets moved in tandem, whether in lockstep or with inverse moves, based largely on “risk on/risk off” investment decisions. Concerned about Europe? Sell stocks, buy bonds. Think the EU ministers will reach a deal? Buy stocks, sell bonds. Nowhere in those decisions was there much thought given to the fundamentals.
Fortunately, that is now changing. Asset values are regressing to the mean as more normal economic influences are being exerted on stocks, bonds, and commodities.
The good news for investors and managers is that making a judgment call or a forecast is hopefully no longer an “all or nothing” proposition. In other words, a portfolio manager can be spot-on about one asset but off about another and still make money. In the days of high correlation, if a manager got one call wrong, virtually every call was wrong. This was extremely challenging for tactical managers as well as firms like Astor.
At Astor, our expertise is economics-based active management. By analyzing various indicators, we determine the state of the economy right now (expansion, peak, contraction, or trough) and invest accordingly. Our models work best when asset correlations follow normal, historic patterns. Low correlation also helps promote portfolio diversification, with strong performance in one area offsetting a weaker performance or even a loss in another. A manager doesn’t have to be 100 percent right to make money. And that, after all, is the objective of an active manager: to create a portfolio that makes money, whether the market rallies or falls.
Looking ahead, as we at Astor Asset Management analyze our investment holdings we will take into account the lowering correlation among asset classes, which we feel is good news for a diversified portfolio such as ours. With asset values reverting to the mean, we will continue pursuing our goal of generating solid, risk-adjusted returns.
Further, as we evaluate our investment decisions for the upcoming quarters, we will continue to watch closely the apparent disconnect in the economic data between GDP and employment. Normally, these two indicators move in tandem and for obvious reasons: When the economy is growing (as evidenced by positive GDP numbers) then employment numbers should increase, while the unemployment rate declines. We’ve seen pretty good jobs numbers lately, but relative weakness in GDP.
The outlier appears to be job growth. The seasonally adjusted unemployment rate was 8.3% in February, down from 8.5% in December and 9.0% in February 2011. Such apparent improvement in the employment picture may have more to do with the participation rate (fewer people in the workforce), than actual gains in the number of employed people.
For the employment picture to show an improvement of that magnitude, one would expect better economic growth than the 3.0% GDP gain for Q4 2011 and 1.8% in Q3 2011. Therefore, GDP numbers for 2012 bear close watching to see if the economy will really gain traction or if things will start to slip. We stand by our determination that the economy has not been giving indications of sustainability in either direction. Now, it appears 2012 will bring us to the crossroads of either expansion or a double dip. No more muddling through.
So what should we hope for, as one investor asked me recently. Rally? Pullback? Root for the portfolio to make money--and for asset value correlations to continue the move toward rationality, based on fundamentals.
All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice or services in any state where to do so would be unlawful. Past results are no guarantee of future results and no representation is made that a client will or is likely to achieve results that are similar to those shown. Please refer to Astor's Form ADV, Part 2 for additional information and risks. Analysis and research are provided for informational purposes only, not for trading or investing purposes. Astor and its affiliates are not liable for the accuracy, usefulness or availability of any such information or liable for any trading or investing based on such information. There is no assurance that the Astor’s investment programs or funds will produce profitable returns, you may lose money. (500001-226)
Asset values are finally marching, once again, to the beat of their own drummers. For portfolio managers and investors alike, this is a welcome change of tune.
Among the many investing challenges of the past few years—beyond the aftermath of a near-meltdown of the financial system and a global economy that went into a deep recession—was the high degree of correlation among different assets. Assets moved in tandem, whether in lockstep or with inverse moves, based largely on “risk on/risk off” investment decisions. Concerned about Europe? Sell stocks, buy bonds. Think the EU ministers will reach a deal? Buy stocks, sell bonds. Nowhere in those decisions was there much thought given to the fundamentals.
Fortunately, that is now changing. Asset values are regressing to the mean as more normal economic influences are being exerted on stocks, bonds, and commodities.
The good news for investors and managers is that making a judgment call or a forecast is hopefully no longer an “all or nothing” proposition. In other words, a portfolio manager can be spot-on about one asset but off about another and still make money. In the days of high correlation, if a manager got one call wrong, virtually every call was wrong. This was extremely challenging for tactical managers as well as firms like Astor.
At Astor, our expertise is economics-based active management. By analyzing various indicators, we determine the state of the economy right now (expansion, peak, contraction, or trough) and invest accordingly. Our models work best when asset correlations follow normal, historic patterns. Low correlation also helps promote portfolio diversification, with strong performance in one area offsetting a weaker performance or even a loss in another. A manager doesn’t have to be 100 percent right to make money. And that, after all, is the objective of an active manager: to create a portfolio that makes money, whether the market rallies or falls.
Looking ahead, as we at Astor Asset Management analyze our investment holdings we will take into account the lowering correlation among asset classes, which we feel is good news for a diversified portfolio such as ours. With asset values reverting to the mean, we will continue pursuing our goal of generating solid, risk-adjusted returns.
Further, as we evaluate our investment decisions for the upcoming quarters, we will continue to watch closely the apparent disconnect in the economic data between GDP and employment. Normally, these two indicators move in tandem and for obvious reasons: When the economy is growing (as evidenced by positive GDP numbers) then employment numbers should increase, while the unemployment rate declines. We’ve seen pretty good jobs numbers lately, but relative weakness in GDP.
The outlier appears to be job growth. The seasonally adjusted unemployment rate was 8.3% in February, down from 8.5% in December and 9.0% in February 2011. Such apparent improvement in the employment picture may have more to do with the participation rate (fewer people in the workforce), than actual gains in the number of employed people.
For the employment picture to show an improvement of that magnitude, one would expect better economic growth than the 3.0% GDP gain for Q4 2011 and 1.8% in Q3 2011. Therefore, GDP numbers for 2012 bear close watching to see if the economy will really gain traction or if things will start to slip. We stand by our determination that the economy has not been giving indications of sustainability in either direction. Now, it appears 2012 will bring us to the crossroads of either expansion or a double dip. No more muddling through.
So what should we hope for, as one investor asked me recently. Rally? Pullback? Root for the portfolio to make money--and for asset value correlations to continue the move toward rationality, based on fundamentals.
All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice or services in any state where to do so would be unlawful. Past results are no guarantee of future results and no representation is made that a client will or is likely to achieve results that are similar to those shown. Please refer to Astor's Form ADV, Part 2 for additional information and risks. Analysis and research are provided for informational purposes only, not for trading or investing purposes. Astor and its affiliates are not liable for the accuracy, usefulness or availability of any such information or liable for any trading or investing based on such information. There is no assurance that the Astor’s investment programs or funds will produce profitable returns, you may lose money. (500001-226)
Tuesday, January 31, 2012
GDP: Softer Than It Looks and Struggling to Muddle Through
The Q4 2011 GDP reading of +2.8% produced what may appear to be a respectable headline number, a full percentage point above Q3 GDP growth of 1.8%. On the surface, the Q4 report also compared favorably to an increase in real GDP of 1.7% for all of 2011. But 2.8%, even at first look, is still softer than the 3.0% gain in real GDP logged for 2010, repeating a pattern that we’ve seen over the past few years: GDP rises, only to drop off again.
Although it may be tempting to look at the economy as a glass that’s half full, I’m afraid it’s far emptier than it looks. Diving into the Q4 GDP report, we see that two-thirds of the amount of growth reported (1.9%) was due to private inventory build-up. (According to standard accounting practice, growth in inventory increases GDP, while sales of inventory reduces it.) Drilling further, the stat that is most meaningful is the real final sales of domestic product -- GDP minus the change in private inventories. This data point eked out only a 0.8% increase in Q4 2011, compared with an increase of 3.2% in Q3 2011. That is very telling.
Although one could conceivably spin the inventory growth number as businesses being optimistic about future sales and building inventories, that scenario is doubtful given weaker retail sales of late. Thus, it seems likely that inventories will be drawn down over the next few quarters, which will be a drag on future GDP numbers.
Retail sales growth has not been strong, and a slow pace is anticipated for 2012. The National Retail Federation (NRF) is projecting 3.4% sales growth for the year, down from 4.7% in 2011. The NRF told Bloomberg News that expansion in 2012 will be “incremental, modest,” citing the housing slump as the “biggest drag” on the U.S.
Indeed, the S&P/Case-Shiller Home Price Index continues to show decreases in the housing market. The 20-city composite for November, just released, showed a 1.3% decline for the month. Year over year, prices are down 3.7%. Nationally, home prices remain below year-ago levels, once again sparking questions about when and where the housing market will finally bottom.
Another weakness in consumer spending was reported by the Commerce Department: Personal income grew by 0.5% in December, up from a 0.1% rise in November. Spending was flat, however. The personal saving rate, meanwhile, was 4.0% in December, compared to 3.5% in November. Saving instead of spending may be good for consumers’ personal balances sheets, but it doesn’t do much good for an economy that needs to gain traction. Additionally, sales increases still appear to be driven by increases in debt which is not sustainable.
No wonder the Fed has been making such somber projections. Last week, its “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents” pegged real GDP growth at 2.2% to 2.7% for 2012 (based on the “central tendency,” which excludes the three highest and three lowest projections). This range of projections for 2012 was softer than those given in November of 2.5% to 2.9%, and was considerably lower than the projections made in June of 3.3% to 3.7%.
GDP readings of late have been helped by inventory and inflation numbers that are not likely to be repeated. Plus, continued fiscal problems in the Euro zone will probably hamper U.S. exports, while decreases in U.S. government spending will also hit demand at home. For a long time I have maintained that the U.S. economy is in a “muddle through” target of around +2.0%. Last year when estimates were for 2011 to show economic growth of 4% to 5% I looked so bearish. Now, not so much. Even the muddle through target of +2.0% would have been better than what we got.
For 2012, I believe we will be lucky to hit the muddle through number again this year. As for stocks, expect the market to take its cue from the lukewarm GDP forecast.
All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice or services in any state where to do so would be unlawful. Past results are no guarantee of future results and no representation is made that a client will or is likely to achieve results that are similar to those shown. Please refer to Astor's Form ADV, Part 2 for additional information and risks. Analysis and research are provided for informational purposes only, not for trading or investing purposes. Astor and its affiliates are not liable for the accuracy, usefulness or availability of any such information or liable for any trading or investing based on such information. There is no assurance that the Astor’s investment programs or funds will produce profitable returns, you may lose money. 500001-189
Although it may be tempting to look at the economy as a glass that’s half full, I’m afraid it’s far emptier than it looks. Diving into the Q4 GDP report, we see that two-thirds of the amount of growth reported (1.9%) was due to private inventory build-up. (According to standard accounting practice, growth in inventory increases GDP, while sales of inventory reduces it.) Drilling further, the stat that is most meaningful is the real final sales of domestic product -- GDP minus the change in private inventories. This data point eked out only a 0.8% increase in Q4 2011, compared with an increase of 3.2% in Q3 2011. That is very telling.
Although one could conceivably spin the inventory growth number as businesses being optimistic about future sales and building inventories, that scenario is doubtful given weaker retail sales of late. Thus, it seems likely that inventories will be drawn down over the next few quarters, which will be a drag on future GDP numbers.
Retail sales growth has not been strong, and a slow pace is anticipated for 2012. The National Retail Federation (NRF) is projecting 3.4% sales growth for the year, down from 4.7% in 2011. The NRF told Bloomberg News that expansion in 2012 will be “incremental, modest,” citing the housing slump as the “biggest drag” on the U.S.
Indeed, the S&P/Case-Shiller Home Price Index continues to show decreases in the housing market. The 20-city composite for November, just released, showed a 1.3% decline for the month. Year over year, prices are down 3.7%. Nationally, home prices remain below year-ago levels, once again sparking questions about when and where the housing market will finally bottom.
Another weakness in consumer spending was reported by the Commerce Department: Personal income grew by 0.5% in December, up from a 0.1% rise in November. Spending was flat, however. The personal saving rate, meanwhile, was 4.0% in December, compared to 3.5% in November. Saving instead of spending may be good for consumers’ personal balances sheets, but it doesn’t do much good for an economy that needs to gain traction. Additionally, sales increases still appear to be driven by increases in debt which is not sustainable.
No wonder the Fed has been making such somber projections. Last week, its “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents” pegged real GDP growth at 2.2% to 2.7% for 2012 (based on the “central tendency,” which excludes the three highest and three lowest projections). This range of projections for 2012 was softer than those given in November of 2.5% to 2.9%, and was considerably lower than the projections made in June of 3.3% to 3.7%.
GDP readings of late have been helped by inventory and inflation numbers that are not likely to be repeated. Plus, continued fiscal problems in the Euro zone will probably hamper U.S. exports, while decreases in U.S. government spending will also hit demand at home. For a long time I have maintained that the U.S. economy is in a “muddle through” target of around +2.0%. Last year when estimates were for 2011 to show economic growth of 4% to 5% I looked so bearish. Now, not so much. Even the muddle through target of +2.0% would have been better than what we got.
For 2012, I believe we will be lucky to hit the muddle through number again this year. As for stocks, expect the market to take its cue from the lukewarm GDP forecast.
All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice or services in any state where to do so would be unlawful. Past results are no guarantee of future results and no representation is made that a client will or is likely to achieve results that are similar to those shown. Please refer to Astor's Form ADV, Part 2 for additional information and risks. Analysis and research are provided for informational purposes only, not for trading or investing purposes. Astor and its affiliates are not liable for the accuracy, usefulness or availability of any such information or liable for any trading or investing based on such information. There is no assurance that the Astor’s investment programs or funds will produce profitable returns, you may lose money. 500001-189
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