Archives for January 2011
A Low-Risk Inflation Hedge
The conventional wisdom is that bonds are a terrible investment when inflation accelerates. The theory is that rising inflation causes interest rates to rise and bond prices to plummet. The financial media has been pounding the table on this thesis for months. Check out “Stop Gobbling Up Bonds—They’re Risky!” in Fortune’s Investor’s Guide 2011. If inflation is your concern, the pundits will advise you to dump your bonds. They advise you to load up instead on stocks, gold, and other hard assets. Gold and hard assets are certainly an inflation hedge. All investors should own at least some … [Read more...]
Global Inflation Heating Up
Inflation is heating around the globe. China is tightening policy to combat inflation, Brazil is raising rates, the U.K. is talking tough on inflation and despite the euro-area’s government debt problems, so is the European Central Bank. It seems the U.S. is the only country ignoring the rising risks of inflation. … [Read more...]
A Caution Signal
Young Research’s Moving the Goods Index is looking toppy relative to the S&P 500. Our Moving the Goods Index is a market-cap weighted index of non-airline transportation companies. The relative performance of transportation stocks can signal economic strength or weakness. The recent stalling in the relative performance of the Moving the Goods Index warrants close attention. A break below the trend-line in my chart may signal that economic momentum is slowing. An unexpected slowdown in growth won’t sit well with stock market bulls. … [Read more...]
China’s Currency Policy
Nice article from Martin Wolf of the Financial Times on China’s currency policy. Below are some excerpts. Why China hates loving the dollar By Martin Wolf, Financial Times "The current international currency system is the product of the past.” Thus did Hu Jintao, China’s president, raise doubts about the role of the US dollar in the global monetary system on the eve of last week’s state visit to Washington. Moreover, he added, “the monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at … [Read more...]
What We’re Reading.
Bondholders Left in the Dark – By Ianthe Jeanne Dugan, The Wall Street Journal This is a major problem and one reason investors should think long and hard before diving into the municipal bond sector. Opaque markets are prone to panics. The Great Misallocators – Review & Outlook, The Wall Street Journal Sounds to me like we may be sowing the seeds for higher structural unemployment. Merrill Traded on Client Data: SEC – By Jean Eaglesham, Dan Fitzpatrick And Randall Smith, The Wall Street Journal This shouldn’t come as a surprise. If Wall Street is admitting to trading on client … [Read more...]
Debunking the China Story
Invest in China, you are told. China’s economy is booming. GDP growth is among the fastest in the world. Since China is growing faster than the rest of the world, it must follow that Chinese stocks are a good buy. That’s the pitch the pundits and promoters continue to make, but is it true? Just this week China reported GDP numbers for 2010. Yes, somehow China, a country with a per capita income that is a fraction of U.S. per capita income manages to report GDP figures before us. Makes one wonder, but that’s a topic for another day. China’s real GDP growth came in at 10.3%—exceeding … [Read more...]
Your Dollar’s Silent Decline
According to AAA, the average price per gallon of regular gasoline is $3.12, up 14% from a year ago. But another way of viewing the price change is as a decrease in the value of your dollar. And a weaker dollar eventually leads to a lower standard of living, since your quantity of dollars isn’t limitless. When government controls the money supply, its quantity of dollars is limitless. And the government’s ability to print more dollars may be the force most destructive to your personal wealth—and even to your well-being in your lifetime. In When Money Dies: The Nightmare of the Weimar … [Read more...]
The Canadians are Coming
Loonie drives Canadians to U.S. malls By Michael Babad, The Globe and Mail "Armed with a pumped-up dollar, Canadian consumers are border hopping to hit the U.S. malls again." "Overnight travel by Canadians to the United States climbed 3.2 per cent in November, while overnight car trips were up by a sharp 6.2 per cent, to 1.1 million, Statistics Canada reports. Same-day trips by car - you drive to Buffalo, N.Y., or Bellingham, Wash., and load up - have also climbed steadily." “Armed with a lofty loonie (a US$0.987 monthly average), Canadians headed south of the border in droves during … [Read more...]
The Perils of Reaching for Yield
Are you reaching for yield? This article in Bloomberg Businessweek illustrates the perils of reaching for yield in reverse convertibles. If the yield looks too good to be true, it probably is. A Stock-Bond Hybrid That Flopped By Zeke Faux, Business Week "Reverse convertibles, which are marketed to individuals by some of the country’s largest brokerages, are typically short-term bonds that convert into stock if a company’s share price plummets. In effect, an investor who buys a reverse convertible is actually selling a put option—the right to sell a company’s stock at a certain price. … [Read more...]