President Trump has proposed financing a rebuilding of America's infrastructure with private funding, but some rural politicians are worried that will leave their constituents without benefits from the program. The theory is that private investors will only be interested in projects with high volume in urban areas. That could leave little investment left for rural projects. Ted Mann explains at The Wall Street Journal: Some rural lawmakers have already begun to raise doubts about the few specific infrastructure proposals Mr. Trump has made. Republicans such as Sen. Jerry Moran of Kansas … [Read more...]
Archives for June 2017
A Temporary Corporate Tax Cut Won’t Help Much
Senate procedural limits on legislation that will increase the budget deficit are hampering the potential for permanent tax rate cuts. But as Alan Cole writes at the Tax Foundation, temporary cuts won't help the economy as much as permanent cuts. Companies dealing with temporary cuts will reduce their investment as the end of the lower-rate period draws near. Cole writes: In recent months, Republicans in the federal government and in Congress have been considering tax reform ideas. One issue that lawmakers are considering is the difference between temporary and permanent changes in tax … [Read more...]
Should You Dump Your Junk Bonds Now?
Despite higher yields, junk bonds today don't look to be worth the risk. If loss rates are factored in, the rosy picture of higher yields begins to look less appealing. MarketWatch reports: The real junk yield The truth is that it’s much riskier than it seems from doing this simple yield, or yield-spread, analysis. That’s because the annual loss rate for junk bonds over the past 35 years has been around 2.5%. You can arrive at the loss rate by adjusting defaults for recoveries. Default rates for junk average about 4.2% annually, according to research from Standard & Poor’s. And … [Read more...]
A Failed Fed Tightening
For the third time in the span of about twenty years, the Fed is in denial over an asset bubble its policies have helped foster. Bubble conditions are most obvious in the FANG segment of the stock market, but a value-based investor could point to many more areas of the market where values appear stretched. Yes, the Fed is now tightening policy, but the pace of tightening is about four years late and at a pace that the market finds laughable. Here, the Wall Street Journal presents the facts of a failed Fed tightening. Broad financial conditions are as accommodative now as they were in early … [Read more...]
A Lawyer Fights Exorbitant 401(k) Fees
Investors' performance can be quickly sliced down when advisers and managers take hefty fees off the top. Fee abuse has been especially rampant in 401(k) programs, where employees sometimes aren't paying enough attention, or operating procedures are opaque. Fed up with this assault on employee savings, lawyer Jerome Schlichter of St. Louis has begun suing for clients. At first, no one took him seriously. Anne Tergesen writes: When Jerome Schlichter started filing 401(k)-fee lawsuits against big companies a decade ago, the personal-injury lawyer from St. Louis wasn’t taken seriously. “We … [Read more...]
How Chinese Phones are Beating Apple and Samsung to New Markets
Chinese phone maker Tanssion makes the phones its customers want, it doesn't try to sell them on the phones it has. For developed markets, Transsion (which sells phones under the Tecno brand, and others) put two SIM-card slots on its phone, because many of its customers switch back and forth between services to get the best rates in different places. It also optimized its phones' cameras for the darker skin tones predominant in its markets. Liza Lin and Dan Strumpf explain this type of marketing. That kind of thinking partly explains how Chinese manufacturers managed to snare more than 40% of … [Read more...]
Heed This Warning from an Investing Legend
One of the many great features of the stocks in Young Research's Retirement Compounders portfolio (RCs), is their dividend paying histories. Pair the RCs with a solid fixed-income investment, and you're on your way to being a world class investor. At MarketWatch, investing legend John Bogle echoes the call for defensive investing. One development could mitigate much of the advantage that index funds enjoy and slow the rush to own them, but you’re probably not going to like it. When the market suffers a prolonged decline, active managers can gain an edge over indexers by moving large … [Read more...]
Net Worth to Income Exceeds Prior Bubble Highs
Here is a chart that should make the Fed uncomfortable. You are looking at the net worth of American households as a percentage of their disposable income. The three lines in the chart are the mean, and plus and minus one standard deviation. What should stand out immediately is how for five decades the ratio moved in a relatively narrow range than then soared and crashed, and then soared again and crashed. Now the ratio has soared again and it has exceeded prior highs. Part of the driver here is that growth in household liabilities has slowed from its historic path, but the biggest … [Read more...]
Why is Gold Going Up?
Typically when stock market prices are rising, the price of gold is falling. But that's not the case today. Gold prices have been trending upward since 2016, with a slight retrenchment after the election. Most of that "Trump Trench" has been eliminated as prices rise again. Gold is holding near new 2017 highs. David Hodari writes at The Wall Street Journal: Gold’s rally paused Wednesday, after hitting fresh 2017 highs on Tuesday on the back of increased macroeconomic and political risk. Gold for August delivery settled down 0.3% at $1,293.20 a troy ounce on the Comex division of the New … [Read more...]
Putnam Announces 3 “Alternatives” Funds: Time to Sell?
The low hanging fruit may have already been picked in “alternatives.” And yet, Putnam has announced three new Alt mutual funds. We’ve seen this movie before (see here and here). Putnam Investments plans to introduce three new alternative types of mutual funds that will be managed by PanAgora Asset Management, a Boston firm that typically manages money for institutions and is majority-owned by Putnam. The new funds include one aimed at investing money under “varying economic conditions,” and another that’s market neutral — or long/short fund — meaning the managers buy stocks they believe … [Read more...]
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