Archive for 'July 2014'

    The Fed: No Rush to Raise Rates

    July 30, 2014 4:56 PM by Zane Brown

    Continued softness in the labor market may be keeping the central bank from raising the fed funds rate sooner than mid-2015. 

    Investors focused on the July 30th meeting of the Federal Reserve’s policy-setting arm, the Federal Open Market Committee (FOMC), for confirmation that the Fed was on track to end its quantitative easing (QE) program by October 2014. They weren’t disappointed. As expected, the Fed announced an additional $10 billion reduction in monthly bond purchases (down to $25 billion per month), moving it closer to the taper-free zone so anticipated. But what market watchers didn’t receive was a clear signal that the Fed was prepared to start raising interest rates ahead of schedule (in 2015). 

    Read More »

    Emerging Market Currencies and the Low Volatility Conundrum

    July 28, 2014 4:50 PM by Leah G. Traub, Ph.D.

    Markets can expect volatility to return at some point. The question is when—and what will be the catalyst?  

    Why is market volatility so low? It’s a conundrum that’s affecting more than just currencies. Every measure of volatility in the financial markets—including the most widely used measure of stock market swings, the CBOE Volatility Index or "VIX"—is at or approaching record lows. In currency markets, volatility1 is almost "missing in action." Even the tragic news of a Malaysian Airlines passenger jet being downed by a surface-to-air missile over Ukrainian territory—seemingly an escalation of the Russian/Ukrainian conflict—failed to disturb the apparent complacency of market participants for more than a few hours. The Russian ruble fell against the dollar as the news broke, but was back to its recent levels by the next morning.

    What to make of all this?

    Read More »

    IRA Rollovers: Finding the Right Fit

    July 24, 2014 6:30 PM by Brian Dobbis

    An IRA rollover can offer potential benefits to many plan participants, but advisors must be sure it is the best option for a client before recommending one.


    Numerous announcements from agency officials, and a smattering of lawsuits brought by disgruntled participants who feel misled, have made it clear that IRA rollover activity will continue to receive greater regulatory scrutiny from agencies such as the Government Accountability Office (GAO), the Financial Industry Regulatory Authority (FINRA), and the Department of Labor (DOL).

    Read More »

    Deflation: What's the Problem?

    July 24, 2014 11:44 AM by Lord Abbett Editorial Staff

    In the Eurozone, as elsewhere, heavily indebted countries will be hurt most.

    Economic growth in the eurozone continues to be weak, and inflation has been declining as well. Like most central banks, the European Central Bank is concerned about the possibility of deflation and is implementing policies to combat it. But is deflation really a problem?

    Financial journalist James Grant and others have argued that deflation is not the problem it’s made out to be. In fact, it is the natural result of improvements in efficiency that have resulted from computer technology and the Internet. If business costs have been reduced dramatically, it only makes sense that consumer prices would also come down. This kind of deflation is also known as a higher standard of living, says Grant.  

    So why do central banks consider deflation the enemy?

    Read More »

    Bonds: Geopolitical Risk Rears Its Head

    July 18, 2014 2:30 PM by Zane Brown

    Developments in Ukraine and the Middle East sparked volatility in fixed-income markets on July 17. Here’s a look at the implications for investors. 

    Geopolitical risk, which largely has been brushed aside by the fixed-income market in 2014, seized the spotlight on July 17. News of a downed Malaysian airliner in Ukraine, and military incursion by Israel into Gaza, fueled a “flight to quality” trade that pushed U.S. 10-year Treasury prices higher and yields lower. The yield on the 10-year note touched 2.44% on the session, matching the low for 2014 (all data on bond yields and spreads in this post are from Bloomberg). High-grade corporate bonds also benefited, as investors redirected assets toward higher credit-quality securities. 

    Read More »

    Stocks: A Stark Reminder of Global Risk

    July 18, 2014 2:25 PM by Milton Ezrati

    Fresh news of geopolitical turmoil spurred selling on July 17. How might markets behave in the aftermath?

    U.S. equity investors appear to have disregarded a growing number of geopolitical threats as they bid major indexes higher in 2014. But the shock of a downed Malaysian airliner in Ukraine, coupled with news of an incursion by Israeli ground forces into Gaza, spurred widespread selling in U.S. stocks on July 17. 

    Read More »

    The IRA Rollover Playbook

    July 18, 2014 2:15 PM by Brian Dobbis

    New rule changes the IRA rollover game.


    Be careful! That’s the message the U.S. Tax Court sent earlier this year via its decision in an IRA-rollover case—Bobrow v. Commissioner—brought by tax lawyer Alvan L. Bobrow against the IRS.

    The court ruling overturned decades of guidance pertaining to the 60-day grace period granted to individuals who roll over assets from one IRA custodian to another. After 60 days, a withdrawal is viewed as a distribution, potentially subject to taxes and/or penalties.

    Read More »

    Emerging Market Corporate Debt: Taking Stock of a Strong Second Quarter

    July 18, 2014 11:52 AM by Jerald M. Lanzotti, CFA

    Emerging market corporate debt remains one of the last bastions of incremental yield pick-up in the capital markets.  

    Historical experience makes one cautious of over-optimism in the emerging market (EM) economies.  But there was something to celebrate in the second quarter of 2014, as EM corporate debt provided one of the strongest performance stories in the fixed-income asset class,1 outperforming both U.S. high-yield bonds2 and U.S. investment-grade bonds.3  Even more remarkable, this performance occurred during a time of headlined geopolitical risk—typically something that would put a crimp in EM sales of any category. What lay behind the strong relative performance of the period?   

    Read More »

    Is The Fed Creating Bubble Trouble?

    July 17, 2014 2:40 PM by Lord Abbett Editorial Staff

    Excess liquidity has not flowed into all asset classes. 

    Financial journalist James Grant and a number of other observers have criticized the Federal Reserve’s quantitative easing (QE) program, saying that by keeping interest rates artificially low, the Fed is artificially inflating all asset values.

    Part of the Fed’s rationale for QE is that low interest rates will encourage investors to shift into stocks and other higher-risk asset classes. This will cause those asset values to rise, resulting in a “wealth effect” that should lead consumers to spend more. And since consumer spending makes up about 70%  of the economy [according the Bureau of Economic Analysis], that should lead to stronger economic growth. Whether this policy has produced this wealth effect and more consumer spending is open to debate, but few deny that it has resulted in higher asset prices. Should investors be worried that all asset classes are now overvalued?  

    Read More »

    Why International Dividends' Total Returns Are Attracting Greater Attention

    July 10, 2014 10:43 AM by Lord Abbett Editorial Staff

    High dividend yields overseas and a rigorous valuation approach can increase the potential for strong total returns.

    What a difference a year makes.  After being hit in 2013 by U.S. Fed tapering fears, the Lord Abbett International Dividend Income Fund has benefitted from continued low bond yields by investing in undervalued stocks with high and sustainable dividends and that have the potential to produce strong total returns.

    Read More »

    Choosing Among the Options: The Appeal of IRA Rollovers

    July 7, 2014 10:42 AM by Brian Dobbis

    Departing plan participants have choices when it comes to their retirement assets. Rolling them over into an IRA has potential benefits worth considering. 


    I receive numerous questions from advisors about why their clients should consider rolling over their 401(k), or other employer-sponsored plans, into an IRA.  There are compelling reasons to consider this option when the opportunity arises.

    Typically, when participants leave a job that has an employer-sponsored retirement savings plan, such as a 401(k) or 403(b), they are eligible to roll over their distributions into an IRA, potentially tax- and penalty-free.  

    Read More »

    Puerto Rico: Is the New Debt Law a Game Changer for Muni Investors?

    July 3, 2014 2:26 PM by Daniel S. Solender, CFA

    While new debt-restructuring legislation does not include the commonwealth itself, muni investors are clearly worried about the direction of the island’s government policy. 

    Last week, Puerto Rico passed a new law allowing its most financially stressed public corporations to restructure their debts in a process akin to bankruptcy. The law excluded the commonwealth, its sales tax-backed COFINA bonds, and its Government Development Bank (GDB) from being able to restructure, according to a Reuters report. But the new law has become a trigger for significant downward movement in most Puerto Rico bonds—including general obligations (GOs).

    Read More »

    Bonds: The 2014 Halftime Report

    July 1, 2014 4:10 PM by Zane Brown

    Will the best-performing market segments be able to sustain their momentum in the final six months of the year? 

    While the biggest fixed-income story in the first half of 2014 was the drop in 10-year U.S. Treasury yields, from 3.05% to 2.55% ( according to Bloomberg data), tightening credit spreads probably did more to enhance investor returns during that time.  

    Read More »