St. Louis Federal Reserve President James Bullard who has made a habit of moving markets by lobbing monetary policy grenades into the markets when they are least expected is coming clean on the Fed’s failed monetary experiment. You may recall that many investors credited Bullard with single handedly putting a floor under a nasty stock market correction last October by suggesting the Fed should halt the taper. Well he is sort of coming clean. Bullard is out with a new paper that comes to the very obvious conclusion that holding rates at zero since 2008 or promising to hold them there for … [Read more...]
Archives for May 2015
Has Warren Buffett Lost His Mind?
Leave it to good ole' Warren Buffett to create a stir. In a recent op-ed in The Wall Street Journal, he calls for an expansion of the Earned Income Tax Credit (EITC) to help low-income workers. How about a reduction in the size of government instead Mr. Buffett? Let workers keep more of what they make and this economy would be much better off. If government is such a great wealth transmission system, why not donate your money to the Treasury rather than the Bill and Melinda Gates Foundation? Elite businessmen like Buffett do nothing to help this economy when they forget about the successful … [Read more...]
The Inflation Ruse
Inflation plays a key role in the monetary policy decisions of the Federal Reserve. The Fed’s mandate is maximum employment and stable prices. In its infinite wisdom the Fed has decided that the definition of price stability means 2% inflation. How the Fed gets away with defining an inflation rate that wipes out about half the value of a dollar over a 30-year period as price stability is truly bewildering, but I’ll leave that topic for another day. Since professors Bernanke & Yellen took over the Fed, the central bank has been obsessed with hitting its self-imposed 2% inflation target. … [Read more...]
The Crash that Cured Itself
James Grant, in his book The Forgotten Depression—1921: The Crash That Cured Itself, explains the resilience of the free market. During the 1921 economic contraction, the government and the Fed got out of the way, and America was better for it. The Mises Institute writes: James Grant, of Grant's Interest Rate Observer, recently joined us at our event in Stamford, Connecticut, to discuss his new book, The Forgotten Depression—1921: The Crash That Cured Itself. If you've never heard of the Depression of 1921, it's because the federal government and the (then new) Federal Reserve did the … [Read more...]
Greetings from 5th Avenue, Naples, Florida
Our office in Naples, Florida is located at 500, 5th Ave., which has received a Certificate of Excellence for the second year in a row from TripAdvisor. Naplesnews.com explains the award here, and you can see our white, Bermuda-style office building in the background of the picture. Naplesnews.com writes: 5th Avenue South received TripAdvisor’s Certificate of Excellence for the second year in a row. The Certificate of Excellence honors accommodations, attractions, and restaurants that consistently receive high reviews for a certain volume of reviews received. To be eligible, a business … [Read more...]
The Monday Melee: A World in Debt
Old and In Debt: Goldman Sachs Asset Management is warning of a looming debt crisis spurred on by aging populations. As seen on the chart below, government debt levels are very high. Meanwhile in China: CNN Money: A new billionaire was created almost every week in China in the first quarter of 2015, according to a report by UBS and PricewaterhouseCoopers. Quotable: "A man in debt is so far a slave." - Ralph Waldo Emerson "Blessed are the young for they shall inherit the national debt." - Herbert Hoover "The United States can pay any debt it has because we can always … [Read more...]
Vanguard GNMA Outlook 2015 Part II
In Part I of this series I explained the risks that investors are compensated for when they invest in Ginnie Mae mortgage backed securities. Since GNMAs are backed by the full faith and credit pledge of the United States government, the primary risks that investors in GNMA securities should be concerned with are pre-payment risk and extension risk. Some of the major factors that influence pre-payment risk and extension risk include the level of interest rates, the historical path of interest rates, housing turnover, the aging of loans, seasonality, and consumer credit conditions. I’ll focus … [Read more...]
Tiny Bubbles
Originally posted January 21, 2014. Imagine outgoing Chairman Ben Bernanke joyfully wrapping things up at the Fed while humming “tiny bubbles make me feel happy” from Don Ho’s song Tiny Bubbles. Creating bubbles seems to be a job requirement for a Fed Chair. The Fed is putting on an air of solidarity for incoming Chair Janet Yellen. The broad show of support for Mini “Tapering” is part I. Any concerns about the stock market are cloaked in Fed speak. Take the recent Fed meeting minutes for example. "Several [Fed officials] commented on the rise in forward price-to-earnings ratios for some … [Read more...]
Housing Starts Surprise: Will Higher Rates End the Party?
Housing starts in America totaled 1.135 million in April. That's higher than the analyst consensus of 1.025 million that had been projected. The question is, with the housing industry starting to pick up the pace, will the Federal Reserve be willing, or able, to raise rates without ending the party? On the one hand the Fed must raise rates someday or risk not having any ability to fight future recessions by lowering rates. On the other hand, if the Fed raises rates, housing could respond by ending the rally. The balancing act continues. … [Read more...]
Sell in May Go Away?
You can learn a thing or two from history. For one, it happened, it’s a fact, and 2) not many people predicted it correctly. In Bill Bryson's book One Summer “America 1927” he touches on the fateful decision by the Federal Reserve to lower its discount rate. The stock market even before leading up to that fateful decision by the Federal Reserve was fueled by credit. You could buy $100 worth of shares with $10 down. Brokers or banks were happy to lend you the money at 10-12 percent interest, which they borrowed from the Fed at 4 to 5 percent. It all worked as long as the stock … [Read more...]