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EWM Team

Sep 01
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U.S. Inflation Watch-July 2014

By Inflation Watch

Consumer prices rose modestly in July, a sign inflation remains in check as the Federal Reserve winds down its bond-buying program. The price index for personal consumption expenditures–the Fed’s preferred inflation measure–increased 1.6% in July from a year earlier, the Commerce Department said Friday. Excluding volatile food and energy prices, so-called core prices climbed 1.5% year over year.

Both overall and core prices rose at the same annual pace in July as they did in June, suggesting inflation pressures remained at bay. Compared to a month earlier, each measure was up just 0.1%. Inflation continues to run below the 2% target the Fed sets as a gauge of price stability and healthy growth. The PCE price index has run below 2% for 27 consecutive months.

Still, prices have picked up since the start of the year, and the Fed projects they’ll steadily climb toward its target by the end of 2015. As recently as February, the index showed prices growing at just 1% year over year.

A separate measure also shows inflation in check. The Labor Department’s consumer-price index rose 2% in July from a month earlier. In May and June, the index had risen 2.1% year over year.

The CPI historically runs about half a percentage point higher than the PCE price index, which employs different statistical methods.

(Source: WSJ, BLS)

Aug 29
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Euro Zone’s Deflationary Problems

By Inflation Watch

Is the Euro Zone dealing with the same deflationary issues that the Fed was grappling with a few years ago?

With the drop in headline euro-zone inflation to 0.3% in August from 0.4% in July, calls for further ECB action—including large purchases of sovereign bonds—are getting louder. Clearly, inflation is far adrift of the ECB’s target of “below, but close to” 2%.

But once again, virtually all of the decline is due to volatile prices for energy, food, alcohol and tobacco. Excluding those, euro-zone inflation rose to 0.9% from 0.8%. Of the decline in headline inflation from 1.3% a year ago, nearly 90% is attributable to moves in energy and food prices.

With core inflation stable, it is hard to see deflation as a threat, even if market-based measures of inflation expectations have proved wobbly recently. More relevant in any case is the attitude of consumers and entrepreneurs to inflation. If lower food and energy prices are proving a cushion for stretched individuals and businesses, then that may be no bad thing. But the longer low inflation persists, the more it may become a problem if, for instance, it starts to drive wage settlements.

(Source: WSJ)

Aug 27
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EWM Number of the Day: 8/26/2014
Aug 26
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S&P 500 Index closes above 2000 for the first time

By Endowment Index™, General

Tuesday’s finish was the 30th record close this year for the index, which has gained 8.2% in 2014 through the end of trade on Tuesday. The Dow industrials hit an intraday record of 17153.80 on Tuesday but failed to hold a record through the close.

It took 16 years for the S&P to gain 1000 points since breaking through 1000 for the first time in 1998. The stocks in the S&P 500 were trading at 23.1 times their expected 12-month earnings as of March 31, 1998, according to FactSet. As of Friday, the S&P was trading at a price/earnings ratio of 15.5, compared with the 10-year average of 13.9.Back in March 1998, General Electric Co. was the largest company in the index by market value, and it had a forward price-to-earnings ratio of 30.9, according to FactSet. That ratio was 14.8 as of Friday.The biggest stock in the S&P 500 today is Apple Inc., which had a forward P/E ratio of 14.7 as of Friday’s close.

The rally through 2000 marks the S&P’s third major upswing since the late 1990s. The index first breached the 1000 mark on Feb. 2, 1998, and ran as high as 1527 in March of 2000 only to break back below 1000 briefly in September of 2001 and again in June of 2002. The post tech-bubble bull market, which saw the S&P push above 1560 in October 2007, was halted by the onset of the financial crisis. That bear market knocked the index down through 1000 in October 2008 to a multi-year closing low of 676.53 on March 9, 2009.

With the latest milestone in the rear-view mirror, some investors are wondering how much further stocks can go.

(Source: WSJ)

 

Aug 22
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Five Reasons Endowments Must Stick With Their Long-Term Investing Strategy Despite Recent Underperformance – Prateek Mehrotra

By News

The portfolio managers atop the country’s most respected university endowments failed to make the honor roll during the current bull market despite their top salaries and genius IQs. Harvard University’s $32.7 billion endowment returned an average of 10.5% annually over the past three years through June 2013 versus 18.45% for the S&P 500, including dividends, over that same period, the Wall Street Journal reported. Yale University’s $21 billion juggernaut gained 12.8% annually over the same period.

Underperformance this market cycle is hardly a reason for endowment managers to be ashamed. All investment strategies experience bouts of underperformance. Looking back 10 and 20 years, endowments outperformed the stock market with a lot less volatility. Endowments failed to live up to expectations this bull market cycle because they’re thin on equities and heavy on alternative assets, which lagged the stock market the past five years. For example, the Yale Endowment has only 11% of assets invested in foreign markets and 6% in domestic stocks. About half of Yale’s portfolio is invested in alternative or illiquid assets such as hedge funds, private equity, venture capital, real estate, timber, oil and gas.

“Less liquid markets exhibit more inefficiencies than their liquid counterparts, illiquid markets create opportunities for astute investors to identify mispricings and generate outsized returns,” the Yale Endowment 2013 report stated. “Intelligent pursuit of illiquidity is well suited to endowments, which operate with extremely long time horizons.”

To read the full article and the 5 reasons why endowments must stick with their long term investing strategy, follow this link.

Aug 20
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Smart Contact Lenses Monitor Blood-Glucose Levels

By General

Novartis and Google are working together to develop a smart contact lens designed to monitor blood-glucose levels while also correcting vision. Currently individuals have to rely on a finger prick test to monitor blood-glucose levels. The smart lens method is more accurate and less invasive. The lens is equipped with a tiny sensor that will analyze the amount of glucose in tears and then relay this information through an antenna. It also has the ability to wirelessly transmit the information to an app on a mobile device. Tears also contain a biomarker, lacryglobin, for breast, colon, lung, prostate, and ovarian cancers. Measuring the lacryglobin levels could help to monitor patients in remission. Ultimately, this type of technology could help individuals better manage their own health and prevent disease through early detection.

(Source: WSJ)