Brighton Perspective

U.S. Economy Slows - WSJ.com

BY LUCA DI LEO AND JEFF BATER

via online.wsj.com

Unfortunately - not surprising. Forecasts for 2011 have already dropped from 3.5 to 2.6% largely as the result of increasing oil prices. Growth this low at this stage of a supposed recovery is not good! Low growth, high unemployment and increasing inflation (even if temporary) contradicts the current strength of equity markets. Corporate earnings performance has been good, but can companies pass on increasing prices to consumers, thus maintaining margins, or will they be forced to absorb them, thus reducing earnings? It's doubtful equity market strength will persist if it becomes evident companies are absorbing cost increases and reducing net margins.

Equity Risk Premiums (Take 15 Series)

Clifford S. Asness discusses a recent roundtable meeting on the equity risk premium (ERP) where forecasts for the future ERP were below historical levels. Reasons for this may be that previous levels were an accident or that valuations are just too high. He also discusses questions about mean reversion and the predictive power of valuations and gives his thoughts on the equity risk puzzle, the biggest drivers for ERP, and the effectiveness of quantitative models.

via www.cfawebcasts.org

Excellent discussion by Cliff Asness on the equity risk premium. This is the return investors expect as "reward" for assuming equity volatility rather than holding "risk-free" treasury bills. Historicall, per Asness, this premium has been about 6% but consensus has dropped to about 4% today. Equity volatility is high today so the question for investors is, given the level of volatility, is a 4% equity risk premium worthwhile?

FT.com / US / Politics & Foreign policy - US lacks credibility on debt, says IMF

The US lacks a “credible strategy” to stabilise its mounting public debt, posing a small but significant risk of a new global economic crisis, says the International Monetary Fund.

via www.ft.com

Something to think about - the consensus seems to be this is mostly a non-issue as long as the U.S. remains the global safe haven but if that status changes...

IMF cuts economic forecasts for U.S. - Yahoo! Finance

Annalyn Censky, staff reporter, On Monday April 11, 2011, 10:02 am EDT

via finance.yahoo.com

This is consistent with many economists today - growth in developed markets is hampered by a persistent output gap (actual GDP relative to optimal GDP) which is keeping unemployment high. Many economists suggest GDP growth should be closer to 7% annualized at this stage of a recovery and that level is necessary to achieve a reduction in unemployment. Stating the rather obvious, high unemployment reduces consumer spending which accounts for almost 70% of US GDP (and a similar percentage for most other developed countries).

Dan Fuss: A 20-Year Bear Market For Bonds Is Starting

Evan Simonoff is editor-in-chief and editorial director of Financial Advisor magazine, as well as editorial director of Private Wealth magazine. He has spent more than 15 years as an editor and reporter covering the financial services industry. Evan is a widely recognized expert on personal finance and investments. 

via www.fa-mag.com

Dan Fuss is one of our favorite fixed income managers. If you agree with his assessment, think about staying on the shorter end of the maturity range but remember to keep it the context of your own needs and objectives.

Earnings Growth Expected to Slow in First Quarter - Seeking Alpha

The fourth quarter earnings season is over, and now the focus turns to the first quarter. We already have 23 (4.6%) first quarter S&P 500 reports in.

via seekingalpha.com

Generally good assessment although it is always wise, in my opinion, to be slightly skeptical.

Dividends come roaring back in 2011 - Yahoo! Finance

NEW YORK (AP) -- Big companies increased their dividends by a record amount in the first quarter.

via finance.yahoo.com

Something to keep an eye on. Companies are generally hesitant to increase dividends unless they're comfortable they will be able to make these payments for the foreseeable future. Cutting the dividend is generally viewed very negatively by the financial markets. Therefore, raising the dividend is often viewed highly favorably.