Meghan Bobrowsky of The Wall Street Journal writes, 5G technology is beginning to expand beyond smartphones. She writes (abridged): The deployment of superfast 5G networks is supposed to usher in a new era for so much more than the smartphone—everything from enhanced virtual-reality videogames to remote heart surgery. That vision has been slow to come into focus, but a first wave of 5G-enabled gadgets is emerging. Among the first uses of 5G to hit the consumer market is the delivery of home broadband internet service for the ultimate cord-cutters: those looking to not just shed their … [Read more...]
Even Horrible Businesses Can Make Money at These Rates
Thanks to a bailout of the corporate bond market by the Fed that has institutionalized moral hazard (I get the reward, you take the risk), junk bond issuers are paying rates of less than 3%. Ball Corp, which is rated BB+ sold $1 billion worth of 10-year bonds at a coupon of 2.875% this week. Ball corp. isn’t a horrible business, but at rates this low, even horrible businesses can make money. The rate distortion is even more disturbing in the investment-grade market. Google, an AA-rated company, recently issued 5-year bonds at a 0.45% interest rate. What will Google, which generates … [Read more...]
Calculating Shareholder Yield
To calculate the shareholder yield, pick up the annual report for a company you are interested in (preferably a non-financial company), and turn to the Statement of Cash Flows. In the Statement of Cash Flows, move down to the section labeled - Cash Flows from Financing Activities. For most companies, this is the last section of the Cash Flow Statement. To calculate shareholder yield, you have to determine the total amount of dividends that were paid to shareholders, the net amount of stock that was repurchased, and the net amount of debt that was repaid. Before you get started, remember you … [Read more...]
How to Invest in an Age of Compromised and Biased Information
In investment management where you spend much of your time reading, gathering and analyzing information. The trustworthiness and reliability of news and information is vital to your success. The same is true for all investors. You need reliable and trustworthy information to make informed investment decisions. The ugly reality is that it is getting harder and harder to find sources you can trust. The decline of print media has eroded the quality of many of the best print publications. The Wall Street Journal announced earlier this month that due to an accelerating industrywide decline in … [Read more...]
Is a Correction in the Cards?
U.S. markets had a nice bounce yesterday and they look poised for another bounce today, barring any hawkish comments from the Fed in today’s policy announcement. But all may not be fine and well as market internals have a real troubling look. The chart below shows the NYSE cumulative advance-decline line for stocks compared to the S&P 500. The advance-decline line measures market breadth. The YTD trading range of the headline indices may be masking underlying weakness in the market that is evident in the downtrend in the A/D line. Narrowing markets are often a sign that stocks are … [Read more...]
Economic Misfire
For as long as the economy has been crawling its way out of the last recession, economists and policymakers have been puzzled by the lackluster rate of economic growth. In past economic cycles, deeper recessions were usually followed by stronger recoveries. Coming out of prior recessions, growth rates of 4%, 5%, and even 7% were not uncommon. During this cycle, annual GDP growth hasn't broken 3.25% once. What explains the lackluster growth during this cycle? Aside from the many policy missteps that have held back growth, the chart below explains why the economy still hasn’t hit its … [Read more...]
The Cure for Oil Prices
There is a popular axiom in commodity markets that says the cure for high prices is high prices. The opposite is also true, and more relevant today. The cure for low commodity prices is low prices. In the oil market, low prices are already beginning to cure low prices. How? Drilling activity is plummeting as seen in my oil rig count chart. At oil prices below $50 per barrel, some U.S. oil wells aren’t profitable so companies are slashing capital budgets and reining in drilling activity. Lower investment and drilling should ultimately lead to lower supply and higher prices. … [Read more...]
Inappropriate Monetary Policy
Yesterday, the Bureau of Economic Analysis released its final estimate of third quarter GDP growth. Growth for the third quarter came in at a blistering 5%. That is the best quarter of economic growth in over a decade. It should now be evident to even Yellen & Co., that the Fed’s monetary policy is absurdly inappropriate. Interest rates should not still be at zero, nor should they have been held there for so long into the recovery. The last time we had nominal GDP growth this good, short-term interest rates were over 5%. By holding interest rates at zero for the entire recovery and … [Read more...]
What Oil Price Correction?
Below is a chart of the price of oil denominated in rubles. In Russia, a cratering currency has resulted in higher, not lower, oil prices for consumers and producers. … [Read more...]
The Most Powerful Fiscal Stimulus
The mainstream press and their liberal Keynesian allies in academia (that means you Princeton & Berkeley) have made a sport out of roasting the Republican led Congress for reining in government spending. Lower government spending, we are told, kills growth at best and crashes the economy at worst. It is a remarkable feat to argue that bigger government leads to stronger growth when centuries of evidence prove otherwise. Those economies where the share of government is smallest most often are the fastest growing. Viewed through the lens of Washington insiders, the gridlock and … [Read more...]
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