A divorced from reality Chicago Fed bank President Charles Evans helped spur a rally in gold today with calls for aggressive monetary stimulus. Evans is in favor of QE3 and would have voted for it at the Fed’s last policy meeting. Like Fed Chairman Ben Bernanke, Mr. Evans believes that QE2 was successful. Successful at what—temporarily propping up stock prices and raising food and fuel prices? Unemployment hasn’t come down meaningfully and the economy is weaker now than it was when the Fed announced QE2 last year. Mr. Evans policy prescriptions are wrongheaded, but sadly I fear his views are … [Read more...]
Archives for August 2011
What We’re Reading 8-26-11
Measuring Inflation: The Core Is Rotten Federal Reserve Bank of St. Louis How Not to Grow an Economy The Wall Street Journal Just How Bad Is Bad? Foreign Policy Boomer Retirement: Headwinds for U.S. Equity Markets? Federal Reserve Bank of San Francisco … [Read more...]
The Trouble with Annuities
You may have learned about the trouble with annuities. In its simplest form, an annuity is an arrangement in which you give an insurance company a lump sum of money and in exchange you receive payments over time. For a fee, that is. At the end of the day, what you’re really doing is giving up control over your money to some investment board that promises to pay you back over time. Assuming, of course, that it stays solvent. When you enter an annuity contract, liquidity can become an issue. I hope you don’t need the money right away, because it becomes costly to withdraw in an emergency. … [Read more...]
Consumers Forecasting Recession
Consumers are now forecasting a recession. The Thomson Reuters / University of Michigan final index of consumer sentiment was released today. The index fell to levels not seen since the height of the financial crisis. The expectations component of the survey plummeted to a three decade low. In the almost 60 year history of the Michigan consumer sentiment survey, every time the index dropped below 60 as it did in August, the economy was in recession. … [Read more...]
Counting on QE3
Is this becoming a tradition? I am of course talking about Wall Street’s calls for the Federal Reserve to fire up the free money truck. It was this time last year at the Fed’s annual Jackson Hole symposium that Chairman Bernanke first signaled QE2 was on the way. Now as then, Wall Street is demanding that Mr. Bernanke signal another round of money printing during his keynote speech. The Street has read in Mr. Bernanke’s playbook that for years now, the Fed has been targeting stock prices. Anytime the Dow tumbles, the Fed eases monetary policy. Just look at its latest action to prop up the … [Read more...]
Inflation Threatens Long Bond Yield
The Labor Department released July numbers for consumer, producer, and import price inflation this week. The results were troubling. Consumer prices increased 3.6% compared to last year, producer prices increased by 7.6%, and import prices increased by a whopping 14%. Even the Federal Reserve’s preferred measure of inflation (core consumer price inflation, known as core CPI, which is inflation minus food and fuel) came in ahead of expectations. Core CPI increased by 1.8% over the last year. The Fed’s unspoken growth target for core CPI is 2%. Because the Fed still believes inflation is … [Read more...]
The Biggest Annuity Mistake
I don’t like annuities. I know there are ways they can make sense in some portfolios, but for the majority of investors they’re a bad move for several reasons. First, they’re pushed on unsophisticated investors by well-trained salesmen. Second, the fees, especially surrender fees, can be devastating if you need your money in an emergency. Third, many investors make the egregious mistake of investing in tax-deferred annuities in a tax-deferred account. Unfortunately, common sense is lost on most because of the aggressive sales tactics of the guys closing the deal, who are compensated heavily … [Read more...]
A Historic Week
Even with the relatively calm day in the markets on Friday, this past week has been one of the most volatile on record. Only during the 2008 financial crisis, the 1987 stock market crash, and the Great Depression have stock prices been as volatile as they were this past week. … [Read more...]
What we’re Reading 8-12-11
Mexico Sells $1 Billion of 100-Year Bonds to Tap Into Drop in U.S. Yields Bloomberg Mistakes in Scientific Studies Surge The Wall Street Journal Business and Health-Care Reform Unfortunate Side-Effects The Economist Warren Buffett Is Wrong On Taxes The Wall Street Journal In Plain Language: Stop the Digging NFIB … [Read more...]
Worst 5 Bear Markets
Developed world equity markets have been hammered in recent weeks. In U.S. dollar terms, many have entered bear market territory—defined as a peak-to-trough decline of at least 20%. We have compiled a slideshow of the 5 MSCI developed world stock market indices with the biggest bear market losses. If you are curious, the U.S. is one of the few MSCI developed country stock markets that has managed to avoid a peak-to-trough drop of 20%. … [Read more...]