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Archives for August 2013

Bank Capital, More Needed

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Long before Basel meetings and the Federal Reserve, America’s banks had figured out the bank capital ratios that worked best for them.  In 1834 that was 47.7%. Today, even in generous risk adjusted terms bank capital ratios are low at 11.1% historically according to the FDIC. A common criticism of economic policies during the 1800s was that recessions were deeper and more frequent. That may be true, but they were also faster and periods of growth were stronger. The long, drawn out recoveries we see today could be a result of over-leveraging and too little bank capital—drawing too much of … [Read more...]

Fed Economist Smacks Down Keynesian Blinder on Deficit

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After Alan Blinder recently wrote a spectacularly Keynesian piece in the Wall Street Journal op-ed section arguing for more deficit spending, VP and Economic Advisor of the St. Louis Fed, Daniel Thornton eviscerated Blinder’s claims in a short report. Below are some quotes from Thornton in response to Blinder’s claims that short term deficit spending increases will increase output without affecting long term growth. Additional deficit spending need not increase output for two reasons. First, increased deficit spending increases the supply of bonds, which reduces bond prices and increases … [Read more...]

Flash Freeze: Mark Cuban says it Wasn’t Just a Tech Snafu: VIDEO

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What Caused the NASDAQ Flash Freeze? On August 22, the NASDAQ stock exchange was hit by some kind of electronic malfunction. Trading was brought to a halt in an embarrassing display for NASDAQ and a possible sign of deeper problems in the way the exchange is run. NYSE and NASDAQ Debate Cause of Flash Freeze After the so-called "Flash Freeze" stopped trading on the NASDAQ, days later executives from NASDAQ and the NYSE are blaming each other for the problems. Meanwhile Mark Cuban is blaming some kind of cyber attack. MarketWatch reported that: Five days after a glitch caused a three-hour … [Read more...]

High Yield Risk

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I was listing to WEEI sports radio last week when I heard an advertisement pushing structured settlement investments. The juicy 5%-7% yields are hard to ignore in this low interest rate environment as is the annoying sales pitch. But you want to stay away from this toxic waste. There's a reason they sound too good to be true. This article from 2010 helps sum it up for you. What are the potential dangers in buying your very own high-yielding hunk of a lawsuit? High yields, but unsuitable for most investors. First is the lack of liquidity. Imagine you expect to hold one of these annuities … [Read more...]

Durable Goods Drop: Good or Bad for Stocks?

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Durable goods orders cratered last month. The Bloomberg analyst poll had predicted a drop of 4%, but the final report showed a shocking decline of 7.3% (chart below). The question is, will a drop in durable goods orders scare some of the bullish investors into pulling back from the markets, or will it spur them on in hopes of an extension to the Federal Reserve’s quantitative easing? … [Read more...]

Make the Best Use of Tax Deferred Accounts

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A recent article in Financial Planning noted that investors can generate 20 to 50 basis points each year in return by properly allocating assets among their taxable and tax deferred accounts. Many investors make the mistake of owning assets not subject to taxes in their tax deferred portfolios. Within tax-deferred accounts, the best fit are investments that generate income subject to the ordinary tax rate, which can be as high as 39.6%. Fran Kinniry, a principal with Vanguard's Investment Strategy Group, argues that tax-deferred accounts are "extremely valuable shelf space," and should be … [Read more...]