My thoughts on Janet Yellen from May of this year. You can be sure there’ll be a price to pay for Federal Reserve Chairman Ben Bernanke’s easy-money policies. Retirees are already feeling the hurt with his 0% interest rates. There was a time, not too long ago, when savers and retirees could depend on Treasury bonds. Not anymore. Not only is the Fed keeping rates on Treasuries near zero, it’s also creating a false sense of demand with the $1.8 trillion it’s hoarding on its books. Simply put, the higher the demand for Treasuries, the higher the price, which for bonds means the lower the … [Read more...]
Archives for September 2013
How Vanguard Wellesley Won the War
You want to keep this chart on your refrigerator because there's been a lot of talk in the press lately about 2008. Looking back five years later is always easier than living through it. What the press fails to explain is the emotional and financial toll 2008 leveled on so many retirees. There's a breaking point for every investor. For those (there's more than you think) that had too much in the stock market that point was clearly met five years ago this month. Too many sold at or near the bottom and have never fully recovered. I have a feeling those that got out are now back at it again, … [Read more...]
Janet Yellen: How Well Do You Know Her?
With Larry Summers’ withdrawal from consideration for Fed chairman, Janet Yellen could wind up leading the board. How well do you know Janet Yellen? Here are some quotes that will give you an idea of her take on monetary policy. The first is from the John Hussman in his Weekly Market Comment, and the second is from Young Research at Global Investment Strategy. Hussman on Janet Yellen: We now face the prospect of Janet Yellen, who in October 2005, at the height of the housing bubble, delivered a speech effectively proposing that monetary policy could mitigate any negative economic … [Read more...]
Utilities Investing: A Compelling Long-Term Opportunity
In our view, investing in utilities offers a compelling opportunity to long-term investors. Utilities are regulated monopolies that sell some of modern life’s most basic necessities—electricity and water. Utilities’ monopoly status gives them the opportunity to earn guaranteed returns that are set by local regulators. As a result, utilities are one of the most stable and enduring businesses in America. And they offer some of the market’s highest dividend yields to boot. Interesting Facts For Utilities Investing In 2011 there were 144.5 million electrical customers in the United States. — … [Read more...]
Monetary Dove Thinks Bernanke Should Taper
Even the most misguided monetary doves are finding reasons to hate quantitative easing. Bloomberg’s Matthew Klein explains why Michael Woodford, pioneer of the low-rate promises many central banks have adopted (including the Fed), thinks the Fed should taper its purchases of bonds. For Woodford, the most important point is that the Fed's balance sheet cannot keep growing without imposing costs on the financial system and broader economy -- even when inflation is low and unemployment is high. While Woodford didn't explicitly tell me what those costs were, a possible explanation can be found in … [Read more...]
The Destruction of Money
If you think the Federal Reserve’s struggle with its tapering problem is bad, stay tuned because you ain't seen nothing yet. Take a look at my chart series below and in a matter of seconds you get a feel for exactly what the Fed has done for the stock market. There isn't a shade of doubt about the direct correlation between the advance in the Dow Jones Industrial Average and the expansion of the Fed’s balance sheet. The advance in stocks undoubtedly provides investors with a false sense of security. But when I walk around downtown Newport, RI it doesn't feel like a vibrant economy to … [Read more...]
Smart Money Bailing Out of the Market
Since the spring of this year, the Smart Money Index (description below) and the Dow Jones Industrial Average have diverged significantly. This isn't normal as the two track each other closely most of the time. With the smart money heading for the exits, investors should be cautious. Bloomberg: The Smart Money Flow Index is calculated by taking the action of the Dow in two time periods: the first 30 minutes and the close. The first 30 minutes represent emotional buying, driven by greed and fear of the crowd based on good and bad news. There is also a lot of buying on market … [Read more...]
China Catches Province Red Handed in Economic Data Fakery
For years we have taken a skeptical view of China’s reported growth rates and overall economic story-line. In stories on inflation, fraud, over capacity, real estate, data inconsistencies, and more, we've raised alarms over China’s economic time-bomb. It seems the problems have gotten so bad that even China’s government has been forced to recognize them and report them. The National Bureau of Statistics announced Thursday that Luliang county had over inflated its industrial output by 158% in the first half of the year. That kind of fraudulent reporting makes investing in China like … [Read more...]
Buying A Home
It’s not getting any easier when it comes to buying a home. Take a look at the spike in mortgage rates on my chart and its impact on buyers like Amy and Ted Wilder. Amy and Ted Wilder lost out in the bidding for several Seattle-area homes during the past six months, even with offers well above the asking price. After May’s sudden spike in mortgage rates, the Microsoft Corp. consultants put their search on hold. “We fell in love with a house for about $400,000 and thought we could afford it, and then we discovered it was $300 more a month than what we would have paid in February when we … [Read more...]