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Archives for July 2012

Fed Says Fed Most Important to Your Returns

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We have noted often on this site and in our monthly strategy reports, that in recent years, Federal Reserve policy has become the main determinant of stock market performance. When the Fed opens the monetary spigot (or hints at it) stock prices rise and when they shut off the valve, prices fall. In a recent blog post, the Federal Reserve Bank of New York attributed over 80% of the return on stocks over the past two decades to, well, itself. The article titled The Puzzling Pre-FOMC Announcement “Drift”, sites a Fed report that finds “that since 1994, more than 80 percent of the equity … [Read more...]

Fed Counts its Chickens Before they Hatch

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It is no secret that the hubris from the economists at the Federal Reserve is palpable, but a recent piece from San Francisco Fed president John Williams takes the cake. In the bank’s monthly economic letter Williams does a premature victory dance for the unconventional monetary policy and bashes the great Milton Friedman in the process. Below are some excerpts from his paper with my comments. Milton Friedman (1970) famously said, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than … [Read more...]

Job Creator Confidence Plunges

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The NFIB Small Business Optimism Index plunged 3 points in June—its biggest drop in over two years. Nine out of the ten components in the index worsened last month. The only component that improved was credit conditions—no surprise given record low interest rates. But easy money doesn’t do much to stimulate the economy when businesses aren’t interested in expanding. And according to the NFIB small business survey, only 5% of businesses think now is a good time to expand—a level historically associated with recession. America’s job creators don’t want to expand because of the weak economy and … [Read more...]

Variable Annuities Down 7%

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The free lunch may be over. That’s the thinking by insurers offering variable annuities. They’ve gotten pretty fat at the trough during the secular decline in interest rates. Now, with profits harder to come by, they’re scaling back sales of variable annuities. Industry-wide variable annuity sales were off by 7% in the first quarter compared to a year ago. But don’t worry—insurers will be just fine. As the president of the Americas for MetLife recently said, “We will manage this business prudently, but I think you can understand why we have no interest in exiting the variable annuities … [Read more...]

Prepare Your Portfolio For More Money Printing

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That didn’t last long. The post-meeting euphoria from the 20th summit to once and for all put an end to the euro-area debt crisis has officially ended. Spanish 10-year bond yields are back above pre-summit levels and at one point today they crossed 7%. Yields on Italian bonds have also risen in recent days, but not to the extent of Spanish bonds. It seems investors are losing patience with euro-area policymakers. Following each meeting, policymakers have announced plans to make a plan to announce a lasting solution to the debt crisis. Yet, after 20 iterations, the euro-area debt crisis rolls … [Read more...]

How to Get Rich

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I suspect that not many investors would own variable annuities if they knew more about them. But learning the ins and outs of variable annuities is like watching sausage being made. Don’t bother. You don’t want to get sick. Believe me when I tell you there are much more suitable investments for you to own. Yes, I know the arguments that are made for owning variable annuities in substantial portfolios, but come on, they’re like numbers 98 and 99 on a list of 100 things to do first with your money. A variable annuity is a salesman’s dream. The commission is hefty, and the sales pitch of … [Read more...]