FRANCOIS TRAHAN: INVESTMENT STATEGIST SWITCHES GEARS FROM BEAR TO BULL

July 27, 2012

It’s nice to be able to focus on some positive news for a change and as you will discover in a moment, this week’s guest is one of the most upbeat Financial Thought Leaders out there right now, at least for the next several months. Here are some developments he’s following that might lift your spirits as well.

The devastation in the housing market, the largest asset held by many Americans, appears to be healing and improving. Although still at depressed levels, new home construction- called housing starts in the trade- recently rose to the highest level in nearly four years. And confidence among home builders climbed by the most since 2002. Even Federal Reserve chief Ben Bernanke noted the “modest signs of improvement in housing” in his otherwise somber remarks recently. And for those of you contemplating buying a home, they have never been more affordable. The U.S. Housing Affordability Index is at a record high due largely to record low mortgage rates. Of course qualifying for a mortgage is another matter! It is still difficult for many Americans.

Another positive trend: inflation. It is decelerating. We can thank falling oil prices over the last few months for putting more money in our pockets. The Fed now predicts that its favorite measure of inflation, the Price Index for Personal Consumption Expenditures, or PCE, will be under the Fed’s targeted 2% level and below last year’s 2.5% rate-  not only a boost to the economy, but giving the Fed some flexibility to provide more monetary stimulus if it sees the need. By one count, there have been well over two hundred stimulative policy initiatives around the world in the past eleven months. That’s a lot of economic juice.

Meanwhile, as this week’s guest has been telling clients recently, investor sentiment is as low as it’s been since the financial crisis. Investors are still net sellers of stock mutual funds and buyers of bonds, even though a record high number of stocks, about 60% of S&P 500 companies, now pay dividend yields greater than the yield on the ten year U.S. Treasury note.

Our guest this week is Francois Trahan, Vice Chairman, Chief Investment Strategist and Head of Quantitative Research at investment research boutique Wolfe Trahan. Institutional investors have ranked him either the number one or number two portfolio strategist on Wall Street for the past eight years. He is also co-author of the recently published book, The Era of Uncertainty: Global Strategies for Inflation, Deflation and the Middle Ground, which I highly recommend. I began the interview by asking him why, after several years of bearishness, he turned bullish last October.

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WEALTHTRACK Episode #905; This program was originally broadcast on July 27, 2012.

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Francois Trahan #905

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Guest Info

Francois Trahan
Head of Portfolio Strategy and Quantitative Research
Wolfe Trahan
BlackRock

Newsletter

Consuelo MackIt’s nice to be able to focus on some positive news for a change and as you will discover on this week’s WEALTHTRACK, this week’s guest is one of the most upbeat Financial Thought Leaders out there right now, at least for the next several months.

Here are some developments he is following that might lift your spirits as well.

The devastation in the housing market, the largest asset held by many Americans, appears to be healing and improving. Although still at depressed levels, new home construction- called housing starts in the trade- recently rose to the highest level in nearly four years. And confidence among home builders climbed by the most since 2002. Even Federal Reserve chief Ben Bernanke noted the “modest signs of improvement in housing” in his otherwise somber remarks recently. And for those of you contemplating buying a home, they have never been more affordable. The U.S. Housing Affordability Index is at a record high, due largely to record low mortgage rates. Of course, qualifying for a mortgage is another matter! It is still difficult for many Americans.

Another positive trend: inflation. It is decelerating. We can thank falling oil prices over the last few months for putting more money in our pockets. The Fed now predicts its favorite measure of inflation, the Price Index for Personal Consumption Expenditures, or PCE, will be under the Fed’s  targeted 2% level this year and below last year’s 2-1/2% rate- not only a boost to the economy in its own right, but giving the Fed  some flexibility to provide more monetary stimulus if it sees the need.

By one count, from top ranked independent research firm ISI Group, there have been 244 stimulative fiscal and monetary policy initiatives around the world in the past eleven months. That’s a lot of economic juice.

It appears there is more to come. Today in London, European Central Bank President, Mario Draghi said that “within our mandate, the ECB is ready to do whatever it takes to preserve the euro… believe me, it will be enough.” Dem’s fighting words for a monetary body that has been accused of being way behind the stimulative curve. As the team at Strategas Research asked “…is this Draghi’s  ‘Jackson Hole’ moment?”, referring to Ben Bernanke’s famous summer of 2010 speech signaling the Fed’s second round of easing?

Speaking of Chairman Bernanke, there were two prominent newspaper articles this week suggesting the Fed itself was ready to take new actions to help the economy, at either its policy setting meeting next week or in September. Influential Fed reporter John Hilsenrath of The Wall Street Journal wrote “Federal Reserve officials, impatient with the economy’s sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring.” Before the Fed’s current policy of transparency, the WSJ was considered to be a major information pipeline to the public.

Regardless of whether it still is, the article and Draghi’s statements helped turn around faltering stock prices. The S&P 500 reversed a four day losing streak today and advanced 1.7%, the biggest gain in nearly two weeks. Yields on U.S. Treasuries rose after hitting record lows earlier in the week. Meanwhile, as this week’s guest has been telling clients recently, some gauges of investor sentiment are as low as they’ve been since the financial crisis. Investors are still net sellers of stock mutual funds and buyers of bonds. Yet a record high number of stocks, about 60% of S&P 500 companies, now pay dividend yields greater than the yield on the ten year U.S. Treasury note.

Our guest this week is Francois Trahan, Vice Chairman, Chief Investment Strategist, and Head of Quantitative Research at investment research boutique Wolfe Trahan. Institutional investors have ranked him either the number one or number two portfolio strategist on Wall Street for the past eight years. He is also co-author of the recently published book, The Era Of Uncertainty: Global Strategies For Inflation, Deflation And The Middle Ground, which I highly recommend. I’ll begin the interview by asking him why, after several years of bearishness, he turned bullish last October.

As always, if you can’t join us at the appointed hour on your local public television station, you can watch the show on our website as a podcast or streaming video. You can also find the One Investment picks of our guests and my Action Points there.

For those of you who would like to see our program 48 hours in advance of the broadcast, you can subscribe to our WEALTHTRACK PREMIUM subscription service on the website.

Have a great weekend and make the week ahead a profitable and a productive one!

Best regards,

Consuelo

Action Point

One Investment

DIVIDENDS, DIVIDENDS, DIVIDENDS

– Dividend paying stocks

Morningstar recommends:
Vanguard Dividend Appreciation Fund (VIG)
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Archive

#730- 01/21/11
Consuelo talks to one of Wall Street’s top investment strategists, Francois Trahan about why he believes the dollar is key to understanding stock market performance this year. Learn how to take advantage of the dollar, in weakness and in strength, with Wolfe Trahan’s Chief Investment Strategist.

June 19,2009
#451
Two highly-regarded investment stars offer perspective and advice on the investment climate. PIMCO’s multi-talented Paul McCulley’s areas of expertise are the economy, bond markets and Fed Strategy. ISI Group’s investment strategist Francois Trahan is ranked number one by institutional investors for his coverage of the financial system and stock markets.

April 3, 2009
#440
Investing through the biggest bear market in a generation. We’ll hear from Wall Street’s number one ranked strategist, Francois Trahan at independent research firm ISI Group, Dennis Stattman the veteran lead manager of BlackRock’s highly regarded Global Allocation Fund and hedge fund manager, John Dorfman who also runs the Dorfman Value Fund at his firm, Thunderstorm Capital.

 


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