Fed Asks Dealers to Estimate Size, Impact of Debt Purchases - Rebecca Christie and Craig Torres, Bloomberg You can’t make this stuff up. The Fed has asked bond dealers to weigh in on their expectations of quantitative easing 2.0 (a.k.a. more money printing). The Fed is trying to gauge market expectations to avoid a potential downside surprise. This is idiotic. The Street knows what the Fed is up to and they are the primary beneficiaries of more money printing. Do you think Goldman is going to tell the Fed that they only expect a few hundred billion in money printing? Not a chance, bond … [Read more...]
Archives for October 2010
The Takeaway from Buffett’s Decision to hire Todd A. Combs
This week, Berkshire Hathaway announced that Todd A. Combs would be joining Berkshire as an investment manager and likely successor to Warren Buffett in the role of chief investment officer. Mr. Combs is an obscure 39-year-old manager of the $400-million Castle Point Capital hedge fund based in Greenwich, Connecticut. Not much is known about Mr. Combs. As of this writing, the media still hasn’t been able to track down a photo of the new Berkshire investment manager. That’s remarkable in this day and age. We do know that Mr. Combs graduated from Florida State University and Columbia Business … [Read more...]
TIPS Signal Higher Inflation
The bond market made history this week: investors paid to lend the government money. The government may want to throw a parade. Investors shouldn’t. On Monday, five-year Treasury inflation-protected securities (TIPS) were auctioned off at a negative yield of -0.55%. Demand was so strong that the Treasury auction was oversubscribed by a 2.84 bid-to-cover ratio—the number of bids received divided by the number of bids accepted. Anything above a ratio of two is considered a successful auction. TIPS can be an attractive inflation hedge because the principal value increases with inflation. As a … [Read more...]
Stock Returns at Half the Risk
Including dividends, the S&P 500 is now up 7.5% YTD. Not bad. At a 7.5% compounded annual return, you would double your money every 10 years. But when you consider the volatility that stock market investors had to endure to earn that 7.5%, it doesn’t sound so compelling. Study my chart below. The grey line is the growth of a $100 investment in the S&P 500 at year-end 2009. To start the year, the S&P fell more than 4%. Then it rallied about 15% over the ensuing three months. When sovereign debt issues intensified in Europe, the index sold off sharply, falling more than 15% from its … [Read more...]
Featured Video: CNBC Interview with UPS CEO Scott Davis
UPS has its finger on the pulse of the U.S. economy. The company moves 6% of U.S. GDP each day. UPS’s quarterly earnings reports and management comments offer important anecdotal evidence on the strength of the U.S. economy. UPS CEO Scott Davis is looking for 2% to 2.5% GDP growth next year and a 2-3% increase in holiday sales this year. … [Read more...]
The Phony Stock Market Rally
The S&P 500 has been on a tear since the Fed first started floating the idea of quantitative easing 2.0. Since August 31, the S&P is up more than 11%. The gains are of course nice to see, but the rally is a phony. Stock prices are not rising on improving fundamentals or cheap valuations. Stocks are rising simply because investors are anticipating that the Fed will print more money. For proof that the rally is a phony take a look at the performance of the S&P 500 in terms of a hard currency such as the Swiss Franc. My chart shows that in Swiss franc terms, the S&P 500 still … [Read more...]
Are You Bullish?
The sentiment survey done by the American Association of Individual Investors (AAII) shows that individual investors are bullish on stocks. The AAII’s weekly investor sentiment survey asks members if they are bullish, bearish, or neutral on the stock market for the next six months. Last week, 47.1% of respondents were bullish, and only 26.8% were bearish. That’s a spread of 20 percentage points, which is high based on recent history. As you can imagine, the weekly investor sentiment survey can fluctuate quite a bit from week to week, so it is useful to look at a moving average. I smooth the … [Read more...]
They’ll Wonder How You Live So Well
The businesses of the top 10 companies in the Vanguard Dividend Achievers fund could easily be part of your Saturday morning errands, especially if the kids and family are visiting. You could start the morning by leaving the house with a can of Diet Pepsi, stop by a Chevron station to fill up the tank, then swing into Walmart for some baby supplies like Pampers and Johnson’s Baby Shampoo for the little ones and Ibuprofen for yourself just in case you use the self-checkout lane. Hop back in the car, zip over to ExxonMobil for a car wash, scoot across the street for a Coke and a Big Mac, and … [Read more...]
TIPS: Paying to Lose?
What would you pay for inflation protection? Investors buying Treasury Inflation Protected Securities (TIPS) are now willing to pay as much as 0.37% annually for inflation protection. In other words, these investors are buying bonds that are guaranteed to lose money in real terms in order to protect their assets from inflation. Before you mock the idea, consider the alternatives. Nominal 5-year treasuries yield only 1.11%. Assuming inflation of 2%, that’s a negative .89% real return. In the treasury market these days, the winner is the investor who loses the least after inflation. … [Read more...]
Fed Makes Mistakes
The Fed Compounds Its Mistakes – Allan Meltzer, The Wall Street Journal “The Federal Reserve seems determined to make mistakes…Anyone can make a mistake, but wise people don't repeat the same one. Increasing inflation to reduce unemployment initiated the Great Inflation of the 1960s and 1970s…The most important restriction on investment today is not tight monetary policy, but uncertainty about administration policy. Businesses cannot know what their taxes, health-care, energy and regulatory costs will be, so they cannot know what return to expect on any new investment…The only lasting … [Read more...]