With short-term interest rates pinned near zero and long rates moving downward on the prospect of more Fed money printing, conservative investors and savers are being starved of yield. These investors are busy scouring the investment landscape for opportunities to pick up yield. The hucksters and promoters smell opportunity. If it’s yield you need, Wall Street has you covered. The Street’s financial engineers have cooked up a steaming stew of complex structured products that promise all the income you could ever want. How does an 11% yield sound? Wall Street’s peddlers can set you up with a … [Read more...]
Archives for October 2010
The Fed’s Stock Market Manipulation
The September jobs numbers from ADP and the Labor Department were released this week. The ADP survey showed contraction in private-sector jobs for the second month in a row. Economists were looking for a gain. The Labor Department’s nonfarm payroll survey showed private-sector jobs gain, but they were more than offset by a contraction in local government employment. On balance, both employment reports were soft and fell short of expectations. With Bernanke & Co. focused on unemployment, the Fed is now almost certain to restart its money-printing campaign following its November policy … [Read more...]
Readers Roundup
Enough With the Low Interest Rates! by Charles S. Schwab, The Wall Street Journal “The negative impact of current policy is clear. The near-zero interest rate experiment is weighing on consumer and investor confidence, and the Fed signals its lack of confidence with each "extended period" proclamation…Small businesses that create jobs are unable to borrow in any meaningful amounts except via 100% collateralized loans. Banks continue to hold large capital bases, mostly because they have no definitive signal yet from the federal government or regulators about what their capital requirements … [Read more...]
Employment Contracting
According to the ADP Employment Report, private sector payrolls contracted for the second month in a row in September. September’s payroll numbers fell well short of economists' estimates. If the government payroll numbers mirror the ADP report, you can guarantee another ill-advised round of quantitative easing will begin at the Fed’s next policy meeting. … [Read more...]
Vital Intelligence for Investment Success
If you read The Wall Street Journal or the Financial Times, you have likely heard about the “risk trade.” It’s a term journalists have been using with increasing frequency to explain the behavior of financial markets. You see, since the financial crisis struck, risky assets have either been rising together or falling together. There has been much less distinction among the returns of risky assets. You have days where either bonds are up or stocks, commodities, and risky currencies are up—it’s risk on or risk off. This recent phenomenon can be explained by an increase in the correlation among … [Read more...]