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Archive for November, 2014

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Posted On 29  Nov  2014  

Oil prices, inflation, deflation and the global economy

There is such a thing as good and bad inflation, good and bad deflation and how this impacts economies. OPEC decided not to cut production this week and this has far reaching consequences for the global economy and different countries. China, Japan, India, Europe and the United States are big importers. Cheaper oil and oil derivatives means lower inflation and more money in the pockets of consumers in these countries and one hopes more spending in other parts of the economy. Consumers in counties that produce oil also benefit. For industry the materials, airlines, consumer sectors all benefit. Miners also benefit because energy costs are a big part of digging and refining metals. Absolute prices of commodities should decline, but profit margins may not. Demand for commodities may rise as economies are given the energy stimulus in addition to cheaper money, because inflation declines everywhere. China and India will cut

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Posted On 23  Nov  2014  

Gold – all that glitter is usually not it

There is a significant section of the investing public that sticks to past beliefs about preserving value in an ever changing dynamics and transformations in the global economy.  People continue to insist in treating Gold as a currency, when in fact depending on which country one is from the gold price has embedded in it currency related opportunities as well as risks.   Similarly we like to group disparate economies or economic zones into bundles such as the BRIC, or BRICS or end up believing in notions such as the Commodities Super Cycle. Much can go wrong with this type of ‘boxed’ thinking. Similar is the notion of a ‘fiat currency’, or the belief that central bankers are making paper currencies worthless by printing more. In reality, attempts are being made to pump more money into the economy, but both demand for credit and the supply of it to those

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Posted On 23  Nov  2014  

Japan investment opportunities – what next?

In January we published a post on the Japanese stock. http://algoam.com/japanese-stock-market-what-next/ The bold initiatives taken by Mr. Abe, the so called “Abenomics”, the QE measures which has the objective of targeting 2% annual inflation rate is aimed at reviving Japanese fortunes and wake it from the slumber of the last 25 years. To a reasonable degree it is working, helped now also by lower fuel prices and will be helped further as Japan restarts its nuclear energy generation. The Yen has weakened from 87 to close to 120. The stock market is up by a similar percentage.  But what is next? Will the Yen continue to weaken? Will the stock market continue to rise? Will consumers start spending? Will companies invest? In the new paradigm every central bank is implementing the same policies, because QE and extra QE, through the asset buying programme, has worked in the United States. A

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Posted On 19  Nov  2014  

Algoam Smart beta – rules based performance

Smart beta is not meant to be cheap. Just because a strategy is rules based doesn’t make it less expensive to service or sell. Distributors still require fees and the cost of delivery using fund structures or managed accounts is the same as any other product. There is a free lunch because Smart beta is less risky and more likely to beat active manager and market indices. Simple smart beta is likely to be cheaper because it doesn’t require the work and the benefits are relatively small. Smart beta should always beat index funds on a risk adjusted basis over the medium to long term. If it does not, then there is no point in calling it smart. Just as it is easy to pick a squad of 10 best players from the top leagues, it should be comparatively easy to pick 30 or 50 winning stocks from a portfolio

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Posted On 09  Nov  2014  

How much risk should one take as one gets older?

It is generally believed that as one gets older one should take less risk with one’s investments. People are advised that they move money into the safer fixed income portfolios and have less and less exposure to equities as they age. According the a survey in the FT this weekend, 27% of people who responded are willing to put more than 50% of their portfolio into equities, compared with only 13% of the 25 to 40 year olds. This finding is not surprising to us. The “Silver Generation” in developed economies, at above 60, is probably the richest above 60+ segment in history of mankind. The younger generation are struggling with stagnation in jobs, wages, school fees, high rents and high taxes. Many are trying to get on the property ladder.  Because people are living longer and healthier lives, older generation have fewer reasons to stop working at retirement and can