Archive for April, 2012

Balancing Perception, Reality, Equities and Fixed Income

April 17, 2012 Comments off

Never underestimate the power of perception to influence people’s fiscal behavior. Perception is such a significant influence, in fact, that economic tea-leaf readers have developed a myriad of surveys and indicators to monitor individuals’ perceptions of the investing environment because perceptions can—and do—move markets. When sentiment is negative, investors tend to shift out of assets they perceive as “risky” and into assets they perceive as “safe.”  Ed Perks, Senior VP and director of Core/Hybrid Portfolio Management for Franklin Equity Group, , is well aware of the role perception plays in the markets and even took note of it in a previous post to these pages: see “Perception vs. Reality.” Here he picks up the thread with his strategy for determining a strategic mix between equities and fixed income when market perceptions change, and what he sees as the fundamental reality today. His thoughts, in brief:

  • We’ve seen a gradual decline in market volatility levels in the first quarter and, at the same time, an increase in risk-tolerance among investors.
  • Despite market turbulence, corporate profits have remained strong.
  • We think rewarding shareholders, achieving dividend growth, and engaging in share buy-backs should be a big part of the corporate story in 2012.
  • Dividend-paying common stocks offer an interesting opportunity amid the reality of today’s yield-scarce environment. Read more…

Drilling Into Fuel Prices

April 3, 2012 Comments off

Gasoline, deodorant, dishwashing, liquid, eye glasses, crayons….What does this list of seemingly random items have in common? They are all made from refined crude oil.1 So even if you don’t feel pain at the gas pump, you probably rely on more products made with or from crude oil than you’d think. And of course even non-oil based products are generally shipped via fuel-consuming transport vehicles, so you’re bound to feel the pinch in the form of fuel surcharges or price hikes sooner or later.

But Beyond Bulls & Bears has never taken a fatalistic view. If volatility can present buying opportunities, surely there’s a possible silver lining to headline-making oil price heights. And so we turn to Fred Fromm, portfolio manager for Franklin Equity Group specializing in natural resources, and part of the team that analyzes the gold and precious metals market, aka the guy with the inside scoop on all things oil, gold, and even those other less-talked-about commodities.

Fromm in brief: 

  • U.S. demand for gasoline is actually down, but demand outside the U.S. is strong.
  • Geopolitical issues, namely in Iran and Syria, are being factored into oil pricing, but major disruptions may not occur.
  • If China’s growth rate could continue indefinitely, its too-strong growth would likely strain commodity supply.
  • Supply-demand balance looks tight enough to support gold, but demand can fall quickly and should be closely watched.
  • Fromm opts for geographic diversification to avoid the risk of having too many investments in a country with a high degree of political risk.

Read more…