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Archives for August 2017

They’re Baaaack: CDOs Rise Again

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Despite the role they played in spreading risk during the financial crisis, CDOs (collateralized debt obligations) are making a comeback. Christopher Whittall and Mike Bird report in the Wall Street Journal that investors are coming back to CDOs. In the U.S., the CDO market sunk steadily in the years after the financial crisis but has been fairly flat since 2014. In Europe, the total size of market is now rising again—up 5.6% annually in the first quarter of the year and 14.4% in the last quarter of 2016, according to the Securities Industry and Financial Markets … [Read more...]

Janet Yellen & the Origin of the Populist Backlash

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No surprise here. The FT points out what most of the American public already knew. Years of low rates and trillions of dollars blown on quantitative easing did little for ordinary Americans. The biggest beneficiaries were the wealthiest 20% of the public. And among those it was the traders and speculators who benefited the most. Ultra-low interest rates have made a rough go of it for conservative investors and income investors. Sadly, the populist backlash that Yellen & Co.’s regressive stimulus helped engineer may be more harmful for long-term economic growth than the recession the Fed … [Read more...]

As if On Cue, Amazon Cuts Prices at Whole Foods

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For months I've been outlining my Bezos Law (see here, here, here, and here), which states that any industry Amazon (and more specifically Jeff Bezos) enters, will see prices reduced. Now, as if on cue, Amazon has announced it is lowering prices at Whole Foods. Amazon will formally take control of the grocery chain on Monday. Once again, my Bezos Law persists. David Shepardson and Lisa Baertlein report for Reuters: The planned price cuts would have been a tough sell to Whole Foods’ investors, who had grown used to fat profits from the upscale chain, but are more in line with Amazon’s … [Read more...]

Where is Your Plumber Buying Parts? Increasingly Online

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As with most retail, online sales of parts for plumbers, mechanics and other tradesmen is rapidly sucking up market share. Rather than heading to the local hardware store for parts, tradesmen are now turning to online retailers like Amazon and others. Brian Baskin and Laura Stevens report in The Wall Street Journal: Online sellers’ push into the market has nabbed much of the industry’s sales growth, analysts say, and sparked concern about the future of traditional suppliers. Ms. Lichtfeld said Madison’s local suppliers have stopped carrying many items easily found online. She also started … [Read more...]

Will Better Looking Renewable Power Make a Difference?

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One of the sad realities of renewable power to date is that it doesn't look very good. Towering wind turbines and bulky solar power installations do not add much to the visual value of most locations. Now a small step toward better aesthetics for renewable power has been made. In Denmark, C.F. Møller‘s International School Nordhavn has been covered with solar panels that have been modified to take on color. The Swiss research institute, École Polytechnique Fédérale de Lausanne, is behind the breakthrough that allowed the school to be covered in sea foam green solar panels. Nicole … [Read more...]

El-Erian Warns Against Unleashing New Demons to Fight ‘Lowflation’

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Rather than take drastic measures to fight what market participants are calling 'lowflation,' Mohamed El-Erian says that it may be better for central banks to stick with the plan they have. He writes at Bloomberg: Having failed to meet the 2 percent target despite aggressive monetary policy, it is far from obvious that central banks would be able to meet a higher objective. And no one is quite sure how the political system would respond to a central bank that pursues much higher inflation as it tries to offset the shortfalls of prior years. Indeed, until we have a better understanding of how … [Read more...]

Retail’s Rise of the Living Dead

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Imagine the feeling you have when someone at a store you frequent remembers your name. It feels good. That’s the level of service national chains will need to bring to the table. It will have to be all about you, as it should be. I wrote about what it will take for retailers to achieve that level of customer satisfaction back in June: The relationship between company and client has never been more valuable. And Jeff Bezos understands this. In Bezos’ world, you will not be a pest. You will be that valued guest and you will be treated with the service you want. Do you want a personal … [Read more...]

Portfolio Strategy: This is the Fair Value Yield on 10 Year Treasuries

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Income investors can’t seem to catch a break. Even though the Federal Reserve is finally normalizing short-term interest rates, long-term interest rates remain depressed. The 2.2% yield on 10 year Treasuries isn’t much higher than it was during the last financial crisis. Based on the rate of economic growth, inflation, and the current Federal Funds rate, long-term interest rates should be much higher. How much higher? The chart below compares the actual 10-year Treasury rate (blue line) to the rate predicted (black line) by a simple model of economic growth, inflation, and short-term … [Read more...]

Can American Fashion Reinvent Itself?

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Big name American fashion brands like Michael Kors and Ralph Lauren have been using heavy promotions to sell their goods of late. But now they're trying to wean customers off such sales. Brands like these have been hurting for years as e-commerce and lower foot traffic at department stores cut into revenues. Now the brand name fashion companies are fighting back. Suzanne Kapner reports: One way he hopes to do that is by strengthening e-commerce, where sales in North America fell 22% in the most recent quarter. Mr. Louvet said he hasn’t ruled out deepening Ralph Lauren’s relationship … [Read more...]