John Wasik

Demographics will drive the ‘new normal’ economy

Sep 30, 2013 22:27 UTC

CHICAGO (Reuters) – One of the most difficult terms to understand in long-term investing nowadays is “new normal.”

Coined by PIMCO Chief Executive Mohamed El-Erian, it means the “world of muted growth” that followed the 2008 meltdown. And although stock returns have been strong this year, down the road, the “new normal” will largely be driven by demographic forces.

And unless the current fight over the U.S. government’s debt limit forces a deep and prolonged market meltdown, now is the time to focus on an investment strategy with a longer view.

A combination of rising wealth, lower fertility rates and a smaller working-age population in developed countries will depress economic growth. Fewer younger people in the workforce and more older, retired people could translate into lower stock returns.

So how do you adjust your expectations? Follow the demographic trends. More than 10,000 “Baby Boomers” turn 65 every day and will continue to do so for the next 19 years, so as an investor, you need to focus on what this population will demand. Retired people require fewer consumer goods and that means fewer homes, appliances and lower sales for many items.

Three ways to profit from the taper tempest

Sep 23, 2013 19:31 UTC

CHICAGO (Reuters) – After the Federal Reserve’s revelation last week that it would not be trimming its bond-buying stimulus program, the storm clouds menacing the stock and bond markets parted.

Investors in both markets relish the prospect of cheap money continuing to fill the coffers of banks and corporations. The Fed has been buying Treasury securities at the rate of $85 billion a month to keep interest rates low and stimulate the economy.

U.S. stock market indexes hit all-time highs on September 18 in the wake of the Fed’s announcement, followed by gains on overseas exchanges the following day. The Standard & Poor’s 500-stock index is up almost 22 percent year to date through September 20. Bond prices have also recovered, as yields fell from the 3 percent range in recent weeks to about 2.74 percent. As yields fall, bond prices rise.

Five investment lessons from the Lehman Brothers blow-up

Sep 17, 2013 12:00 UTC

CHICAGO, Sept 17 (Reuters) – Five years ago I was watching
the world financial system implode after the failure of Lehman
Brothers in real time. Since I’m largely a buy-and-hold
investor, I grimaced while my retirement savings took a
pummeling in 2008-2009.

What have we learned since that calamitous year? There were
certainly a few gut-wrenching surprises as well as some enduring
truths that still hold in personal investing for the future.

1. Gravity is stronger than diversification

For years, we adherents to the Modern Portfolio Theory of
diversification have practiced the fine art of blending our
portfolios with assets that don’t typically move together. In
2008, many, including me, were surprised when commodities funds,
which were supposed to move in the opposite direction of stocks,
followed stocks into the abyss. When nearly everything declines
in a global meltdown, there are few safe havens.

Why dividend-growing stocks are beating bonds

Sep 9, 2013 19:08 UTC

CHICAGO, Sept 9 (Reuters) – With all the angst in the market
lately about rising rates bruising bond prices, where can you
find reasonable income with less sensitivity to interest-rate

The answer, surprisingly enough, is dividend-growing stocks.
These cash-rich companies not only have the ability to raise
payouts but their returns are still competitive with bonds in a
low-rate environment.

Dividend growers can offer better performance than bonds
because total return rises as the dividend yield is increased.
(Total return is a stock’s appreciation plus reinvestment of
dividends and capital gains before taxes.)

Use convertibles to straddle stock and bond markets

Sep 3, 2013 16:25 UTC

CHICAGO, Sept 3 (Reuters) – As bonds that can be converted
into stocks, convertibles are securities that long-term
investors can learn to love.

Just like regular bonds, convertible bonds have a maturity
date, coupon payment and face value. As an enticement to
investors, though, they can be converted into common stocks at a
later date. While their yields are not as high as conventional
bonds, the conversion feature offers you a potential stock play
at lower risk.

With anxiety mounting over the Federal Reserve’s next Open
Market Committee meeting – and whether it will back off its
bond-buying program – convertibles may represent a little-known
sweet spot between pure income investing and the stock market.