At the Financial Times, John Dizard explains how Fed policy is leaving retirees broke. He writes: At the present trajectory of Fed policy, the 10-year bond will be close to yielding zero per cent by election day in November. The Fed will be trying to defend the “zero lower bound”, a set of points on a yield curve just above negative interest rates, for short-term funding. But by the time the 10-year rate gets within 10 or 20 basis points of the ZLB, the curve is telling you that there is no reward for saving money for the long term. At that point, which by simple extrapolation comes in … [Read more...]
Archives for August 2020
The Wealthy Escaped the City: Politicians Beg them to Come Back and Pay Taxes
You might not believe how lopsided New York City's tax system is, but here you can read it in the words of the governor of New York State, "A single per cent of New York’s population pays half of the state’s taxes and they’re the most mobile people on the globe." Gov. Andrew Cuomo is begging wealthy New York City residents to return to their city homes so they can be taxed by the city's income tax surcharge. To fight the pending deficit the city is facing, many city politicians want to tax those who remain even more, but Cuomo knows this is a bad idea. The Daily Mail reports: It is … [Read more...]
“Double Down” Ben Meng Leaves World’s Biggest Pension Fund
This should be a welcome relief to participants in California’s public pension plan. Ben Meng the man who steered the pension plan out of tail hedge strategies that soared just before the market crash and decided to leverage up the plan’s portfolio to meet return objectives is leaving. Hopefully, his successor will take a more prudent approach to risk management. The FT has more: Calpers, the $400bn Californian employee pension fund, said late on Wednesday that Ben Meng would leave effective immediately. The fund said Dan Bienvenue, deputy chief investment officer, would serve as interim … [Read more...]
Monetary Heart Attacks Likely to Lead to S&P 500 Crash
My charts (the Fed’s EKG) on high powered money and M2 growth point clearly to undisciplined chaos at the Fed. Do you see any instance of such chaos in preceding decades? No! Indeed, payday will arrive. The table indicating my own program of gold buying gives you a look at one of a number of moves I made last spring to balance myself for the inevitable comeuppance. At our family investment counsel firm, we emphasize ongoing strategy discussion, featuring new issue corporate bonds, dividend-paying Swiss franc denominated stocks, and currency and especially high US dividend-paying … [Read more...]
Pension Funds in Blue States are Playing You
If you are relying on a pension fund in a blue state, you're being played. Blue states that have mismanaged their fiduciary obligations are playing the country, waiting for the finish line, aka a federal bailout. The expected return targets of most of these pensions are 7%, on balanced portfolios. You can see from the chart of 10-year Treasuries below that the current state of fixed income is not supportive of those expectations. So pension managers must be relying on the stock market, which has recently endured its third major collapse in less than twenty years. The return expectations … [Read more...]
Here’s How Tesla Really Became the Biggest Auto Manufacturer
At The Wall Street Journal, Holman W. Jenkins at the bizarre case of Tesla, the auto industry, and how politicians' efforts to combat emissions have created an actual deterrent to EV startups. He writes: Until the media starts doing its job, this slide toward policy idiocy will only accelerate. Such government interventions always tend to cartelize the industry they take aim at. That’s the drift here. Mandates that result in electric vehicles being dumped on the market are a deterrent to new EV entrants. Tesla wants to shelter behind these barriers too, though you would never get Mr. Musk to … [Read more...]
Dump All Low Yielding US Treasuries Now
Today we have a situation where the Fed has forced individual investors with life-time savings to subsidize corporate buybacks, acquisitions, and Wall Street banking industry borrowing and speculating. It’s what I call de facto robbing and stealing. In reality, the Fed is nothing more than a private club to favor corporate and banking elites. When the Federal Reserve was first established in 1913, Congress directed it to “furnish an elastic currency, to afford means of rediscounting commercial paper” and to establish a more effective supervision of banking in the U.S. The Fed’s duties … [Read more...]
Gold Prices are Soaring: Here’s Why
Owning gold is like owning some insurance in your investment portfolio. When times are uncertain, its price may go up while others are going down. It has always made a great deal of sense to own gold, but now more than ever its price is rising. Joe Wallace explains why gold's price is soaring in The Wall Street Journal: The main reason is this year’s precipitous drop in yields on U.S. Treasurys to levels below the expected pace of inflation. Unlike bonds or bank deposits, gold doesn’t pay any income. As a result, owning gold means missing out on yields from other assets when interest … [Read more...]
Is the Stock Market Too Big to Fail?
There is some truth in that headline. The central bankers' focus on the performance of financial markets and specifically the stock market has turned one of America’s greatest strengths into a liability. Last time the Fed bought Treasury securities to prop up the market. This downturn, they waded into corporate bonds. Is there any doubt that during the next big down cycle, the Fed’s emergency lending powers will be used to buy stock prices directly? What a sad state of affairs. Bloomberg has more on one analyst's take on the stock market's emerging too big to fail status. Lu Wang … [Read more...]
How COVID Will Change Buildings
The Wall Street Journal's Katy McLaughlin explains how COVID-19 changed the way a developer is building his projects. She writes: Someday, years from now, a resident will wake up in their luxury condominium at developer Gregg Covin’s The Cedars Lodge & Spa in Hendersonville, N.C. They’ll make breakfast on the island in their big kitchen and sit on their heated balcony. They’ll walk out of their private entrance and use an elevator that serves only three other units. They’ll work out in a series of small exercise rooms and gather with friends at a restaurant in a glass … [Read more...]