YoungResearch

What We’re Reading 2-3-12

Young Research — Fri, 03 Feb 2012 18:45:43 +0000

Cyberattacks likely to escalate this year, Byron Acohido, USA Today

The Zero Decade, The Wall Street Journal

Iran Says Nuclear Scientist’s Murder Shows Foreign-Backed Terror Campaign, Ladane Nasseri and Nicole Gaouette, Bloomberg

Class Warfare and the Buffett Rule, Arthur B. Laffer, The Wall Street Journal

Saint Warren’s Dark Side, Charles Gasparino, New York Post

Robert Shiller: A Housing Bottom? What Are They Thinking?, Henry Blodget, Daily Ticker

The Buffett Ruse, The Wall Street Journal

Romney’s Fair Share, The Wall Street Journal

Employment Picture Brightens: Is it Bullish for Stocks?

Jeremy Jones — Fri, 03 Feb 2012 18:39:20 +0000

The Bureau of Labor Statistics released the monthly jobs report this morning. The headline numbers blew away expectations. Non-farm payroll employment increased by 243,000 in January compared to estimates of 140,000. The unemployment rate came in at 8.3%, 0.2% better than expectations. The big upside surprise in January’s employment numbers is likely related to the Labor Department’s annual benchmark survey and population adjustments, but there is no denying the positive trend in the labor market. Over the last three months, non-farm payrolls have increased by an average of 200,000, while the average gain in household employment has been an impressive 446,000. Over the last six months, the unemployment rate fell by 0.8 percentage points–that matches the fastest decline in the unemployment rate since the recovery began. From a cyclical perspective, the employment picture looks bright, but structural problems remain.

While the reported unemployment rate is improving, the labor force participation rate continues to plunge, exposing a weak structural underbelly to the labor market. Is unemployment really falling or are discouraged workers just dropping out of the labor force? The number of long-term unemployed also remains near record highs and now accounts for 43% of the total unemployed. The average length of unemployment is also at a record high at more than 40 weeks—double the prior peak reached during the early 1980s recession. A lower labor force participation rate and higher structural unemployment point toward a slower potential growth rate in the economy.

Today’s stronger than expected improvement in the employment numbers is undeniably bullish for the economy, but is it as bullish for stocks as today’s 150 point rise in the Dow implies? Stock markets have already priced in ultra-loose monetary policy for another three years and a third round of money printing from the Fed. If the U.S. economy continues to gain cyclical momentum there is a risk that the Fed could pull away the punch bowl sooner than stock investors expect. I’m not making a forecast here. With Dr. Bernanke at the helm of the Federal Reserve, monetary policy is more likely to err on the side of continued financial distortion and asset bubbles than it is sound money, but a more hawkish (or less accommodative) Fed is a risk worthy of your consideration.

Paul Ryan Calls Out Bernanke on Profligate Monetary Policy

Young Research — Thu, 02 Feb 2012 20:19:42 +0000

Time for a Ron Paul Dollar?

Young Research — Wed, 01 Feb 2012 13:00:20 +0000

The Dollar Game Is Rigged

E.J. Smith — Tue, 31 Jan 2012 13:00:29 +0000

You’re getting less than $0.20 on a 1971 dollar. You can see the decline in my chart.

And based on the Fed’s rock-bottom interest-rate policy, there’s no reason to believe it’s getting any better. That’s why you want to study the Wall Street Journal op-ed by David Malpass. He writes:

Wednesday’s meeting result could have been worse. The Fed might have announced more purchases of U.S. Treasurys and mortgage securities. It already owns nearly $2 trillion worth and has no limit on its expenditures, which fall completely outside the federal budget. Bond traders have been pleading with the Fed to announce further purchases so they can buy first and score big profits.

Stopping Fed asset purchases would help growth by allowing market distortions to subside. It’s clear there’s been no benefit from the Fed’s unprecedented balance-sheet expansion, up 250% since 2008: no increase in private-sector credit (flat since 2009) and no impetus to the economy, which has been particularly weak in the quarters following Fed asset purchases.

Near-zero interest rates penalize savers and channel artificially cheap capital to government, big corporations and foreign countries. One of the most fundamental principles of economics is that holding prices artificially low causes shortages. When something of value is free, it runs out fast and only the well-connected get any. Interest rates are the price for credit and shouldn’t be controlled at zero. It causes cheap credit for those with special access but shortages for those without—primarily new and small businesses and those seeking private-sector mortgages.

Young Research’s Retirement Compounders

Dick Young — Mon, 30 Jan 2012 13:00:58 +0000

Retirement Compounders Portfolio is comprised of 32 dividend and income-paying securities from around the world. A well-diversified, 32-stock portfolio can give you over 90% of the diversification of owning every stock, for example on the NYSE.

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Fed QE3 Not a Solution for Economy, Feldstein Says

Young Research — Sat, 28 Jan 2012 13:00:04 +0000

Don’t Let This Mutual Fund Mistake Cost You Thousands

Jeremy Jones — Fri, 27 Jan 2012 16:32:59 +0000

What mutual fund mistake am I talking about? This mistake is so common, chances are you have committed it yourself—before you became a savvy, successful investor, of course. If you have ever purchased a mutual fund solely on the basis of past performance, you have made this mistake. Buying yesterday’s winners—also known as performance chasing—is a time-honored tradition for many investors. No matter how many warnings they hear on the pitfalls of performance chasing, many novice investors continue to engage in this practice.

Poll your friends and family who have 401(k) accounts. Ask them how they decide which funds to invest in. I am sure you will find, as I do, that past performance plays a principal role in their investment strategy.

According to Dalbar, Inc., a financial services market research firm, performance chasing and other misguided investment strategies can cost investors dearly. For the 20-year period ending in 2010, the S&P 500 earned an annual average return of 9.1%—enough to turn $100,000 into $570,000. During that same time period, Dalbar estimates that the average equity fund investor earned a return of only 3.8%—enough to turn $100,000 into $210,000. Over a 20-year period, performance chasing cost the average investor $360,000 or 3.6 times his initial investment. Ouch!

A close cousin of performance chasing is investing in “star” funds. You know, the funds that the financial press lionizes—the Fidelity Magellan and Legg Mason Value Trusts of the world. This mistake isn’t limited to novice investors. Experienced investors and even some professionals are guilty of chasing star funds. Star funds tend to have strong long-term performance records when the financial press starts recommending them, but they soon become victims of their own success. Once the money pours in, the performance often turns south.

Take the Legg Mason Value Trust Fund run by Bill Miller. This was a darling of the personal finance magazines for years. Miller’s claim to fame was that he outperformed the S&P 500 for 15 consecutive years. But the streak ended in 2006 after investors dumped billions into the fund, and things quickly went downhill from there. Since year-end 2006, Miller’s Legg Mason Value Trust underperformed the market by 38%. Miller even lost his touch in his smaller, more nimble fund, the Legg Mason Opportunity Fund. Last year, Legg Mason Opportunity plunged 35%. Other star funds that bombed last year include CGM Focus, down 26%; the Fairholme Fund, down 32%; and Fidelity Magellan, down 11.5%.

The takeaway: don’t be a performance chaser, and steer clear of “star” mutual funds.

Former American Express CEO Harvey Golub on Obama’s Tax Proposal, Deficit

Jeremy Jones — Wed, 25 Jan 2012 17:08:28 +0000

Jan. 25 (Bloomberg) — Harvey Golub, chairman of Miller Buckfire & Co., talks about President Barack Obama’s proposal that the wealthy pay more in income taxes. Golub, speaking with Betty Liu on Bloomberg Television’s “In The Loop,” also talks about the Republican Party’s 2012 presidential candidates and the federal deficit. (Source: Bloomberg)

Black on Obama’s State of the Union Address

Young Research — Wed, 25 Jan 2012 13:51:54 +0000

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YoungResearch

What We’re Reading 2-3-12

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Employment Picture Brightens: Is it Bullish for Stocks?

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Paul Ryan Calls Out Bernanke on Profligate Monetary Policy

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Time for a Ron Paul Dollar?

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The Dollar Game Is Rigged

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Young Research’s Retirement Compounders

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Fed QE3 Not a Solution for Economy, Feldstein Says

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Don’t Let This Mutual Fund Mistake Cost You Thousands

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Former American Express CEO Harvey Golub on Obama’s Tax Proposal, Deficit

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Black on Obama’s State of the Union Address

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