It has been my experience that publicly managed funds, such as pensions, tend to be backward looking. They embody a rear-view mirror way of investing that is, often times, easier to defend to a committee to save one’s job, but not necessarily the best investment strategy, as I explain here and here. In another example of group-think, pensions are trying to “protect” against losses with a “crisis risk offset.” Sounds pretty serious. In reality, it’s a 20-year Treasury bond ETF that is almost guaranteed to lose money in an all but guaranteed rising interest rate environment. Remember, when … [Read more...]
Archives for October 2018
Robinhood Markets? No Such Thing as a Free Lunch
Despite offering no-fee stock trades, Robinhood Markets is still getting paid. The company is using a controversial process called "payment for order flow," to generate revenue. Despite its "free" trades, investors should always remember that there's no such thing as a free lunch. Bloomberg's Simone Foxman, Julie Verhage and Suzanne Woolley report: Here's how it works: Retail brokers like Robinhood focus on recruiting customers and building the trading interface, but don't actually execute their clients' orders. They outsource that to firms—including Citadel, Two Sigma and Wolverine … [Read more...]
Eddie Lampert Determined to Prevent Sears Going the Way of Toys R Us
In the latest episode of retail carnage, Sears has filed for bankruptcy. Sears' controlling shareholder, Eddie Lampert, has spent years and millions of dollars keeping America's most famed retail brand alive. With a chapter 11 bankruptcy filing, Lampert hopes Sears will avoid the fate that befell Toys R Us earlier this year. He's looking forward to a speedy bankruptcy process and a return to control of Sears. Lillian Rizzo writes at The Wall Street Journal: Sears Holdings Corp. controlling shareholder Edward Lampert spent years keeping the retailer out of bankruptcy court. Now a $300 million … [Read more...]
Higher Rates Help Banks
Higher interest rates and a steepening yield curve, driven by strong economic growth and a winding down of global central bank stimulus are helping banks. Interest margins are expanding at some of the nation’s biggest banks as interest rates on loans rise faster than the interest cost of deposits. So long as higher interest rates don’t dent loan demand, a rising interest rate environment can be positive for the banking industry. The WSJ has more. Finally, there was no sign anywhere that consumers or businesses are having trouble staying current on their loans. Both JPMorgan and Wells Fargo … [Read more...]
Do Chinese Auto-Sales Spell Danger for its Economy?
Chinese auto sales were down for the third month in a row in September. The slowdown could be a sign of declining consumer confidence in China, or even worse, the beginning of a slowdown in the economy. Trefor Moss writes in The Wall Street Journal: Auto sales in China fell for a third straight month in September, as the country’s auto sector faces what looks to be its first yearly decline in passenger-car sales in almost three decades. Fragile consumer confidence amid a falling stock market and U.S.-China trade tensions led to weak September results for most auto makers, as overall sales … [Read more...]
This Harvard Professor Thinks a Recession Might Be Coming
Harvard economics professor, Martin Feldstein, who presciently said the U.S. may be in recession back in March of 2008, is again warning that a recession may be looming. He writes at The Wall Street Journal: The principal risk now is that a stock-market slowdown could shrink consumer spending enough to push the economy into recession. Share prices are high today because long-term interest rates are extremely low. Today the interest rate on 10-year Treasury notes is less than 3%, meaning the inflation-adjusted yield on those bonds is close to zero. The hunt for higher yields drives investors … [Read more...]
Rising Interest Rates Clobber Investors as Stocks Collapse?
Utter nonsense. But can you spot the “charitable” word in my headline? The key word here is the word investors. Most financial market participants, whether professional or amateur, are not investors at all. Rather they are more akin to Vegas-like speculators. Real Investors have a long- term game plan based on compound interest, cash flow, balance and patience. In my over five decades of investing, I have never once sold out of the financial markets based on unfolding events or some predictions of future events. The truth is, after so many decades of buy and hold, I could be … [Read more...]
Government Inflation Measures Miss the Mark
The CPI Inflation numbers for September came in below economist estimates. A big driver of the miss was a drop in used car prices which fell 3% in September vs. the prior month. That matched the biggest drops on record for used car prices, but did used car prices really plunge 3% in the face of a booming economy? Not likely according to Manheim Consulting’s used Vehicle Value Index which hit a record for the third consecutive month in September. As is typical with many of the prices the government reports in the CPI, the reality on the ground tells a different story than is being … [Read more...]
Your Retirement Life: A Dire Warning Part II
In Part I, I wrote to: You may want to pay attention to what public pensions are buying and, more often than not, do the exact opposite. Case in point, a few years ago this group loaded up on “alt-investments” and hedge funds. Don’t look now, but hedge funds, which charge an exorbitant 2-and-20 (2% per year on your assets under management and 20% of your investment gains), are going out of business left and right. And then, as reported yesterday in The WSJ, the California Public Employees Retirement System (CALPERS) spent more than $2 billion on Southern timberland and harvested the trees … [Read more...]
Don’t Manage Your Money Like This
In September of 1992, I outlined the tragic story of a MLB slugger, Jack Clark who had misspent his money and wound up in bankruptcy. I wrote: It’s Time for Bankruptcy Not for you of course. No, I’m writing to you about bankruptcy for Jack Clark, Boston Red Sox slugger, but this story carries a lesson for most of us. Now here’s a guy—a good guy, too—with a three-year Red Sox contract worth $8.7 million. And yet Jack is bust. He has listed $11.5 million in debts, versus only $4.8 million in assets. Clark owns 18 automobiles, including a $717,000 Ferrari. He dumped over $1 million into … [Read more...]