BlackRock CEO Larry Fink gets it. Stanley Druckenmiller gets it. Yngve Slyngstad, manager of the world's largest sovereign wealth fund, Norges Bank Investment Management, gets it too. The world’s central banks don’t seem to appreciate the risks they have created in the global financial system by holding interest rates at zero for years now. Might it be that the world’s central banks are dominated by far too many academic economists and far too few practitioners of economics, you know the men and women who buy things, start businesses, and make loans and investments? Many practitioners will … [Read more...]
Archives for April 2015
Tax Day: Top 20% Pay 80%
As if April 15th wasn't depressing enough the WSJ reminds us that the top 20% of earners pay 84% of the income tax. The bottom 20% get's paid by Uncle Sam. Who pays what in income taxes? With April 15 just around the corner, filers may be curious about where they fit into the system as a whole. The individual income tax remains the most important levy in the U.S., providing nearly half of federal revenue. This is unusual: On average, developed nations get only one-third of their revenue from income taxes. Typically they also impose national consumption taxes, such as a value-added tax, … [Read more...]
When Asset Booms Go Bust
Voxeu.org has a fitting post up for the economic times on the threat posed to the economy by deflation. Everything you read and hear from the mainstream media, which is of course force-Fed a diet of Keynesian economics, is that deflation is a scourge that must be battled with the full arsenal of the monetary authority. The economic devastation during the Great Depression is always dragged out as the poster child for why deflation is so destructive. But what if the Great Depression was an outlier? Four researchers from the Bank for International Settlements find that historically, … [Read more...]
The Monday Melee: Iron Fadin’
Iron Ore Prices Dropping Fast: The price of iron ore has dropped dramatically since its peak in February of 2011. Imports to China's Tianjin Port have seen a price decline of 66.5%. Producers Facing Loss: According to ANZ Research, many iron ore producers are facing losses if they continue production. ANZ states, "BHP and Rio are the lowest-cost producers and are the only ones making decent profits at the current price. Brazil’s Vale is marginal and analysts say Fortescue is now losing money (which Fortescue disputes)." Mining in the Pilbara: … [Read more...]
The Best Performing Portfolio
Pop Quiz! Which of these portfolios had the best performance over the last three years? 3yr Return A) Portfolio 1 +65.8% B) Portfolio 2 +56.5% C) Portfolio 3 +42.5% D) Not enough information Easy, right? The answer is obviously Portfolio 1 because it had the highest return. That’s at least how the vast majority of the investing public and many in the financial press would have answered the question, but it’s incorrect. Investment return is not the same as investment performance. To properly evaluate investment performance you must consider risk as well as return. The correct answer … [Read more...]
Economy on the Verge of Recession?
Is the U.S. Economy on the verge of recession? According to the Federal Reserve Bank of Atlanta’s GDPNow Forecast, first quarter GDP is estimated to rise just 0.10%. The Atlanta Fed’s GDPNow Forecast is constructed by aggregating statistical model forecasts for 13 subcomponents that comprise GDP. The model is updated throughout the month as new data becomes available. You can read more about the Atlanta Fed’s model here: … [Read more...]
Dire costs of easy Fed now and later: Jim Grant
CNBC: Closely followed market watcher Jim Grant disputes the argument that there's no harm in the Federal Reserve keeping interest rates near zero percent—calling for the cost of borrowing money to be determined by the free market. … [Read more...]
Fidelity’s Winning Edge
You can see Fidelity’s winning edge is alive and well through its CEO Abigail Johnson. She runs it like a family business—for the long-term. It’s private, not publicly traded. She doesn't have to answer to the whiny Wall Street analysts every quarter. When I worked at Fidelity I remember how the Johnson family had their finger on the pulse of their company. Chairman Edward "Ned" Johnson III believed and lived by the philosophy of Kaizen—constant improvement. There was never a shortage of money to invest in making Fidelity’s technology platform better. It’s the best in the business. Last … [Read more...]
Stampede of the Commies
I don’t think China has this capitalism thing down yet. With the Chinese housing market rolling over and the Chinese economy slowing, the Shanghai Composite index is soaring. I don’t mean soaring a little bit. I mean it’s up a ton. Chinese stocks have almost doubled over the last year. There’s a stampede to join in the fun. The hottest sector is technology. Bloomberg reports that Chinese tech stocks are now trading at 220X earnings. In March of 2000 at the height of the greatest stock market bubble in U.S. history, the NASDAQ index was trading at 156X earnings. Why are Chinese … [Read more...]
Do-It-For-Me 401(k)
You have more opportunities for success today with your 401(k) than ever before. The reason why is that more and more plans are offering a managed account option. A managed account is one for which you can hire a professional to do the investing for you. No more worrying about what funds to buy or getting hit by big mistakes. The biggest mistake I see is that too many young professionals have their 401(k) invested in their company stock. I like the confidence—I realize it’s hard to diversify (sell company stock) when you believe in your company—you should believe in your company. But … [Read more...]