Are you shocked? You shouldn’t be. The Fed’s mini-quarter of a point increase in interest rates yesterday was long-overdue—we’ve been saying so for years (read here, here, here,and here)—and the three more increases expected for next year fall well short of our 4% target. Why? Because the 90-day Treasury needs to get to 4% and it needs to get there pronto, plain and simple. The North Star, as Dick Young refers to the T-Bill, which has been lost in the night sky for years now, is beginning to flicker (see the big jump in rates on the chart below). It’s been a long-cold winter. Retirees … [Read more...]
Archives for December 2016
2% Where Have You Been All These Years?
Yesterday was the first time since the Spring of 2011, that the yield on 5-year Treasury notes crossed 2%. What's so special about a 2% yield? Walter Bagehot of Lombard Street fame, opined many decades ago that "John Bull can stand many things, but he cannot stand two percent." That may still be true today, but after so many years of being deprived of safe interest income, a 2% yield doesn't look so bad. If you take the liberty of assuming that Yellen & Co., won't let the inflation genie out of the bottle, it is once again possible to invest in medium-maturity full-faith-and-credit … [Read more...]
Switching from an Oil-Fueled Car to a Coal-Powered One?
Are electric cars the future? BP Magazine looks at some energy variables. Imagine a time when electric cars could outsell gasoline cars by ten to one. It may seem unlikely, but that era has been and gone. This was actually a reality in the United States at the turn of the 20th century, when 600 electric taxis roamed the streets of New York and an electric car held the land speed record. Overall, global oil demand is projected to grow by around 20 Mb/d over the next 20 years, driven by increasing prosperity in fast-growing Asian economies. In short, electric vehicles will have an impact on … [Read more...]
These are the Questions You Need to Ask Your Advisor: #1
I’ve been writing to you for years about the difference between the fiduciary and suitability standards (Read here, here, and here for starters). A fiduciary standard requires an advisor to look out for your best interests, whereas a suitability standard does not. The first question you should ask any serious investment advisor is, "Are you required by law to follow a fiduciary standard?" Judging by this article from The Wall Street Journal, the idea is finally catching on with investors. The Labor Department’s new fiduciary rule is set to start being implemented in April and is expected to … [Read more...]
Is This Revolutionary Tax Overhaul the Most Innovative Since 1986?
The WSJ outlines the innovative GOP tax plan in depth: As a rule, taxing a behavior makes people do less of it, and that principle applies to anything from cigarette smoking to realizing capital gains. That principle, though, isn’t so clear regarding a Republican proposal that for the first time would tax American imports while exempting exports from U.S. tax. And economists question whether such a policy, known as a border adjustment, would diminish imports into the country or increase exports. The GOP election sweep of Congress and the White House has given the idea of adopting a … [Read more...]
Portfolio Strategy: The Surprising Truth about Most ETFs
As the popularity of ETFs grows, so too does the popularity of investing in market capitalization weighted indices. The largest ETFs with the most YTD inflows are the capitalization weighted SPDR S&P 500 ETF, the iShares Core S&P 500 ETF, and the Vanguard S&P 500 ETF. According to Bloomberg, YTD inflows are almost $50 billion at these three ETFs and assets under management amount to $375 billion. All three funds of course track the 500 stocks in the S&P 500. Most investors then logically assume that if they own an S&P 500 ETF, their assets are diversified across 500 … [Read more...]
This is the Bull Case for AT&T
AT&T is a stock we have long followed at Young Research. Here, Barron's outlines a bull case for the stock. You can read our latest thinking on AT&T in Intelligence Report. AT&T investors are getting the best of both worlds today. The stock’s 4.85% dividend yield is almost twice that of the 10-year Treasury and well above the 2% paid by the S&P 500. And with AT&T’s (ticker: T) stock trading at 13 times forward earnings, its valuation looks attractive. AT&T also offers growth potential. Under a President Trump, the telecom giant should benefit from a kinder … [Read more...]
Why do Big Banks Love Big Government So Much?
Despite the opportunity to repeal the Dodd-Frank financial laws that have plagued the banking industry since their passage, big banks are reluctant to support such a move. It turns out, big government is great for preventing new competition from emerging, and with barriers to entry so high, the big entrenched banks see more risk to their business from repealing Dodd-Frank than from keeping it. The Wall Street Journal writes: J.P. Morgan’s Jamie Dimon and Lloyd Blankfein of Goldman Sachs have urged against repeal, and other bank CEOs are also suggesting policy small-ball rather than wholesale … [Read more...]
Small Gov’t and Lowest Taxes Stimulate Miracle Growth
Donald Trump would be wise to follow the lead of international tax expert Dan Mitchell of The Cato Institute. To be blunt, I don't think the World Bank should exist. We don't need an international bureaucracy to promote economic development in poor nations. Particularly since the policies that we know will work - free markets and small government - oftentimes are hindered by intervention from multilateral institutions such as the World Bank. For example, I've spent the past few days in Vanuatu, where I've been fighting against the adoption of an income tax. Perhaps most laudable, the … [Read more...]
This Excellent Author is Back with an Amazing New Book
Michael Lewis, author of Moneyball, revisits market inefficiencies and why they exist in his new book The Undoing Project. Here William Easterly reviews the new book for The Wall Street Journal. Easterly calls the book "a spectacular account of two great men who faced up to uncertainty and the limits of human reason." Easterly writes: Michael Lewis’s brilliant book celebrates Daniel Kahneman andAmos Tversky, Israeli-American psychologists who are our age’s apostles of doubt about human reason. The timing is fortunate, given that overconfident experts may have caused and then failed to … [Read more...]