Aiming for Private Equity-Like Returns Using a Small Cap Value Quant Strategy

By Justin J. Carbonneau (@jjcarbonneau) —  “I do not like debt and do not like to invest in companies that have too much debt, particularly long-term debt. With long-term debt, increases in interest rates can drastically affect company profits and make future cash flows less predictable.” — Warren Buffett Of the twelve quantitative models we run publicly on Validea, nine of them look at a company’s level of debt in their assessment of a firm’s… Read More

Hedge Fund Titan Ray Dalio Says American Debt Likely to be a Drag on Growth

Although Bridgewater Associates founder Ray Dalio doesn’t see a market crisis in the near term, he believes that Americans have accumulated more debt than their assets and income can support. This according to a recent article in The Wall Street Journal. This will “drag” on growth and markets, says Dalio, leaving the economy “acutely vulnerable” to higher interest rates, arguing that the Fed is now being forced to balance containing inflation through rate hikes with… Read More

How to Invest in a High-Debt, Low Yield World

While the word “debt” often carries a negative connotation, “it is important to remember that debt can be used in different ways. In fact, all debt, similar to dietary fat, is not created equal.” This according to an article in last week Barron’s that outlines possible investment approaches in a highly-leveraged yet low-yield global market. A healthy amount of debt creation is “necessary to support economic expansion, but too much can drag on growth and/or… Read More

Corporate Debt and the Fallout from Rising Rates

The potential for and timing of an interest rate hike is the source of endless speculation and presents several layers of potential fallout for highly leveraged companies, according to Validea CEO John Reese. In a recent article for The Globe and Mail, he discusses the various factors at play. A wall of maturities: Rising rates could jolt the bond market. Jeffrey Gundlach of DoubleLine has said that “hundreds of billions” of corporate and high-yield bonds… Read More

Gross: America the “Cleanest Dirty Shirt” — For Now

In his latest investment outlook, PIMCO bond guru Bill Gross offers a sobering take on the global debt crisis, saying it could take decades for economies and markets to return to normal. But, he says that in a world of subpar investment options, the U.S. is currently the best place to look. “What global investors, fixated on historical cyclical trends as opposed to secular delevering dynamics fail to appreciate is that economies and their financial… Read More

The 90% Debt/GDP Threshold: Reality or Myth?

Over the past year-and-a-half, many prominent strategists have cited the research of Carmen Reinhart and Kenneth Rogoff in contending that the U.S. will be in big trouble if its debt-to-GDP ratio climbs past 90%. But Robert Huebscher, the founder of Advisor Perspectives, says they are misreading Reinhart and Rogoff’s research. The problem, Huebscher says, is that those citing the 90% threshold have “ignored Reinhart’s and Rogoff’s own words of caution with respect to the special… Read More

Krugman on Why Politicians Don’t Get Debt

For much of 2011, politicians have been squabbling over how to pare the U.S.’s deficit. But Paul Krugman says they’re misguided in doing so. “This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans,” the Nobel laureate economist writes in his New York Times column. “But it also revealed something else: when people in D.C. talk about deficits and debt, by and… Read More

Sonders: Want Job Growth? Provide Regulatory Clarity

Charles Schwab Chief Investment Strategist Liz Ann Sonders sees weak growth for the U.S. for “quite some time” — though she doesn’t see another recession on the horizon — and says eliminating regulatory uncertainty is a key to stabilizing the business climate and creating jobs. “Slow growth at best,” Sonders says of her expectations for the U.S. economy this year and next year, in an interview with Harlan Levy on Seeking Alpha. “The biggest impediment… Read More

Krugman: We Need a Short-Term Fix

While many say the U.S. should be focusing on long-term solutions to its debt problems, Nobel Prize-winning Economist Paul Krugman says that a more pressing need is a short-term fix for its economic engine. “When you’re bleeding profusely from an open wound, you want a doctor who binds that wound up, not a doctor who lectures you on the importance of maintaining a healthy lifestyle as you get older,” Krugman writes in a recent New… Read More

Siegel Sees “Irresistible Values”; Says This Isn’t Another 2008

Author and Wharton Professor Jeremy Siegel says the current low valuations in the market make it unlikely that we’ll see another decade of meager returns for stocks, like we did after the tech bubble burst in 2000.  “It’s certainly scary in the short run, but I think there are really irresistible values here in the long run,” Siegel tells CNBC in discussing the recent market turmoil. “If you can just grit your teeth and say… Read More