Alert! My Payday Indicator is signaling the worst environment for investors during my investment career. Conservative investors have been left with scraps on the floor; there isn’t even a decent chuck burger to be had, let alone a T-bone steak. At the end of 2009, investors were asked to take on more risk and receive less reward than at any other time since I’ve been in this business. My Payday Indicator replicates a portfolio invested 50% in Dow Jones Industrial Average stocks, and 50% in three-month T-bills. As you can see from my chart, the yield on this portfolio is the lowest on … [Read more...]
Archives for April 2010
Jobs Growth a Paper Tiger
While the American economy created 162,000 new jobs in March (Chart 1), the number of unemployed rose. The much lauded success of the jobs report is a paper tiger. While the creation of 162,000 jobs is better than none, it didn’t even cover the number of new people added to the workforce. The numbers of both unemployed and underemployed (people who would like to work full time but can only find part time work) increased last month (Chart 2). While politicians crowed over the increase in jobs after the report, Ben Bernanke was more measured in his reading. “We are far from out of the woods,” … [Read more...]
Searching for Yield?
With yields of 0.15% on T-bills and 2.6% on five-year CDs, the temptation of many investors is to reach for yield. Don’t do it. When you reach for yield, you are either taking on too much credit risk or too much maturity risk. With a flood of government debt issuance in the pipeline, and a bloated Federal Reserve balance sheet, much higher interest rates are a dangerous prospect. Don’t forget that a seemingly modest 1% rise in interest rates could decimate a long-bond portfolio. I’m talking about losses upwards of 20%. That’s not what most bond investors sign up for. Instead of reaching for … [Read more...]
Young Research’s Favorite Energy Play
A conservative way to play a potential rise in the prices of natural gas, coal, and even oil is to invest in renewable power. In an environment of rising fossil-fuel prices, renewable power generation assets benefit the most. Why is that? The majority of the power generated globally comes from fossil-fuel-based inputs such as coal, natural gas, and oil. If the price of natural gas rises, for example, natural-gas-fired power plants would face higher costs. Those higher costs would of course be passed on to consumers in the form of higher electricity prices. Since prices are set at the margin, … [Read more...]