The Irish bailout has been all over the news this week, but the real risk in Europe doesn’t lie in Ireland, or Greece, and not even in Portugal. Spain is the real risk. Spain is much larger than Ireland and may in fact be too large for the E.U. to bailout. Investors are becoming increasingly nervous about the prospect of a default in Spain as evidenced by the record wide spreads in Spanish government bonds relative to German government bonds. … [Read more...]
Archives for November 2010
Up 30% with GNMA
You’re right to be concerned about higher interest rates and a decline in bond prices. Yet it would be a shame to miss the boat on the wonderful returns coming from bond funds with short-term maturities. The Vanguard GNMA fund, for example, with an average maturity of less than two years, has returned 7.6% YTD. For income investors, GNMA provides a relatively attractive yield of 3.27% compared to other short-term bonds like Treasuries. The Vanguard Short-Term Treasury, for example, yields only 0.30%. And compared to stocks, the Vanguard GNMA fund was up 7.2% in 2008 while the S&P 500 … [Read more...]
A Treasure Trove for Dividend Investors
As many of you know, I invest exclusively in dividend-paying stocks, and I advise the same for my strategy report subscribers. If a company does not pay a dividend, I won’t even consider it. At my family investment company, our common stock portfolios are invested exclusively in dividend-paying stocks. We favor companies with strong balance sheets, stable businesses, and a long history of consecutive dividend payments and annual dividend increases. A steady stream of dividend income today and the promise of higher income tomorrow has appeal for conservative investors and those in or nearing … [Read more...]
Crossing the Line
I have written at length both on Youngresearch.com and in Young Research’s Global Investment Strategy about why another round of money printing by the Fed is a mistake. Not only is the Fed debasing the dollar, inflating asset prices, encouraging a misallocation of capital, punishing responsible savers, and risking much higher future inflation, but ultraloose monetary policy erodes the competitiveness of U.S. business. If a business requires a depressed U.S. dollar and zero interest rates to remain viable, it probably shouldn’t be in business to start with. Bernanke & Co. have long … [Read more...]
Municipal Bonds Plummeting
Muni bonds are cratering. The iShares National Municipal Fund is down more than 5% since the beginning of November. Rising long-term interest rates, a flood of new muni issuance, and lingering state and local budget issues are all contributing to the violent move down in muni bond prices. … [Read more...]
Senator Bob Corker on the Fed
This is a giant leap in the right direction. The Fed’s dual mandate is harmful to the long-run stability of the U.S. economy. Monetary policy does not create sustainable employment. While I would take Senator Corker’s proposal one step further and take the Fed out of the business of managing the economy, this is a step in the right direction. Urge your Senators and Representatives to get on board with Senator Corker’s proposal to scale back the Fed. … [Read more...]
Stock Market Bulls on Shaky Ground
The chorus of bullish stock-market pundits on CNBC has become deafening in recent months. The justification for buying stocks that I hear most often from this crowd is that stocks are cheap because bond yields are low. Many bulls will tell you that you should dump your bonds in favor of stocks because stock yields are higher than bond yields. This sounds like a compelling argument in favor of stocks. And based on the multiyear highs of recent investor-sentiment polls, many individual investors agree. After being conditioned by inflated stock prices for two decades, loads of investors … [Read more...]
Gold is at $1,400
Don't tell me there is no inflation, the price of gold has topped $1,400/ounce. The Dow Jones Industrials are up year-to-date and over the past three years. But even so, Gold has beaten the DJIA Total Return (i.e. dividends included) handily as shown in my two charts. Make sure you are not caught off guard here. Your exposure to stocks must be well compensated by owning high yielding dividend payers. … [Read more...]
Sky-High Silver
Silver prices have gone parabolic. The metal is up almost 60% since August. If history is any guide, this isn’t going to end well. … [Read more...]
Selected Quotes from the Myth of the Rational Market
I recently finished reading The Myth of the Rational Market by Justin Fox. The book is a chronological history of modern economic and financial theory. It’s lighter reading than it sounds. The book is a good read for those of you with a deep interest in finance or economics. I read the book on my iPad using Amazon’s Kindle app. This was the first book I read from cover to cover electronically. Reading for long periods of time on the iPad takes some getting used to, but it does have its advantages. One of benefits of the Kindle app is that all of the items you highlight and notes you make … [Read more...]