2015 Midyear Outlook – Some Assembly Required


LPL Financial recently released their midyear economic and market outlook.  Their theme is that investors should pay close attention to portfolio construction going forward.  The economy has delivered six consecutive calendar years of positive returns for stocks since the end of the Great Recession.  However, constructing a strategy for the remainder of the economic expansion will require a tricky assembly.  Divergent monetary policies reveal an uneven global recovery that has triggered an uptick in stock market volatility.  A few important pieces requiring assembly for the remainder of 2015 include:

  • How the US economy pieces together the components needed to bounce back from its lackluster start of the year?
  • After successfully delivering the US economy out of the recessionary “warehouse,” how does the Federal reserve assemble an exit strategy from its six-year policy of zero interest rates?
  • Corporate earnings growth continues to search for that spark to ignite equity advances.

A key point made by the LPL Financial report is the importance of diversification.  Diversification detracted from market returns in 2014, but the beginning of 2015 witnessed the return of diversification benefits.  With volatility poised to rise in the second half of 2015, the potential benefits of diversification should hopefully continue to materialize.

The last point I want to highlight is LPL Research predicting another positive year in the US stock market as measured by the S&P 500 Index.  Their forecast range is 5-9%.

To read the entire report click here:  http://lpl-research.com/outlook/Midyear-Outlook-2015_Spread.pdf




Grexit – Do We Have A Deal?

by Riaan Nel in Global Economy

Greek Prime Minister

Sky News from Britain provides a nice overview of the potential deal between Greece and her creditors here (http://news.sky.com/story/1506133/hopes-raised-of-eu-deal-over-greek-bailout.)  However, most of the pension cuts will be funded by increased employer contributions, i.e. tax cuts.  I think Greece are being pushed too hard to institute austerity measures.  Austerity should be phased in over a longer period of time.  This, notwithstanding, the Greek government will have to cut pensions.

Midway through the article there is a nice little video on the Grexit.



China Expands Island Construction

by admin in News

China construction




The Fed’s Rate Debate

by Riaan Nel in Global Economy

Janet Yellen Chair of the Federal Reserve Board of Governors

Janet Yellen Chair of the Federal Reserve Board of Governors


According to minutes released today by the Federal Open Market Committee for their January 27-28 meeting it appears Fed staff economists were mostly upbeat.  They estimated the economy grew faster in the second half of 2014 than they had anticipated.  Also, the anticipated boost to consumer spending from declining energy prices allowed Fed economists to revise upward their outlook for the first half of 2015.  “Overall, the risks to the outlook for US economic activity and the labor market were seen as nearly balanced,” the minutes said.

What stands out to me in the minutes is the detailed discussion and debate about when to raise rates and by how much?  Essentially the debate revolves around the issues of inflation and stability risks on the one hand, and impeding the economic recovery on the other hand.  If the Fed waits too long it could lead to a build up of inflation and financial-stability risks.  Conversely, if the Fed moves too quickly the economic recovery could be impeded or choked off.

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The Accidental Superpower

by Riaan Nel in News


Accidental Superpower

I’m currently reading Zeihan’s book.  It is pretty compelling.  Although I am always skeptical of peering too far into the future and making bold conjectures.  However, it is something that is essentially human – our ability to think forward.  The future is where we’re going to spend the rest of our lives.  Although I, like most people, worry too much about the future, I believe it is indispensable to think about the future in a rational way.  Zeihan’s book so far is compelling and thought provoking.  I agree that North American energy independence and dominance are probably inevitable.  I also agree that we are probably many decades away from the United States’ decline.  However, are we entering an Hobbesian world?

Thomas Hobbes was an English philosopher writing his famous Leviathan in 1651.  In Leviathan Hobbes postulates what life was before governments.  He calls this a “state of nature” – basically a world where each person pursues his own survival and interest.  Over time humans formed groups, tribes and eventually nation-states.  Individuals ceded power to an authority for protection and other utilities of organizing as societies.  Hobbes, though saw the international order as in a “state of nature” where states/countries all vie for their own interest.

After World War II an international order came into being protected by the United States.  Zeihan sees a fracturing of this world order.  I do think there is merit to this argument.  But I believe it is in the US’s interest to continue to protect and guarantee the current world order of relative free markets, free trade, and in integrated global capitalist system.  I’m skeptical to the disintegration predicted.

Below I’ve pasted an excerpt of a  review from The Wall Street Journal by Liam Denning.  The entire review can be read here: http://www.wsj.com/articles/book-review-the-accidental-superpower-by-peter-zeihan-1417653112


Peter Zeihan begins “The Accidental Superpower” by declaring that he has “always loved maps.” From this unremarkable claim springs a lively, readable thesis on how the success or failure of nations may rest on the very ground beneath their feet. Rather than focusing on charismatic leaders or lofty ideals, Mr. Zeihan stresses the more prosaic forces that shape world events: topography, soil quality, access to water. Water especially, he says, sorts winners from the rest. It can be a highway, a barrier, a larder and a battery. Rivers make it cheap to transport goods and people, enabling the efficient mixing of ideas and markets. The capital that might otherwise be spent on, say, building a road may be used for other purposes.

It happens that the United States—the “superpower” of Mr. Zeihan’s title—is blessed with 12 major navigable rivers, including the Mississippi. Much else flows from this happy accident. A less pressing need for grand, land-based infrastructure projects, for example, may lessen the need for centralized coordination, encouraging small government.

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