We wrote recently on why savvy investors should eschew Wall Street research and make independent research a cornerstone of their investment strategy. Here, the Financial Times provides yet another reason for you to avoid investment banking research. The big banks are slashing research staff because they don’t generate enough profit for the banks. The trend is expected to accelerate as incoming EU regulations will require money managers to pay investment banks directly for any research they consume instead of using their client’s commissions. This is likely to be a punishing blow to investment … [Read more...]
Portfolio Strategy: When Good Companies Make for Poor Investments
Good companies don’t always make good investments. If you are a regular reader of this site you know we have written that often. Coca-Cola is a great business, but if you would have purchased it at year-end 1999, ten years later you would have been looking at an average annual return of about 2%. Over the course of that ten-year period, Coke had an average return on capital of about 21% and its earnings tripled. Why did the stock of one of the world’s great companies perform so poorly despite the impressive financial performance? The 45X earnings that investors paid to buy Coke shares … [Read more...]
Is this the White Knight for America’s Dying Malls?
American malls have been bruised and battered by online retailers. The big-box department stores that were once of the anchor of the American shopping mall look like they are on their way out. Here, MarketWatch reports on a new concept that may replace department stores as the anchors of malls. As department stores struggle, a new type of tenant may take their place: food halls. “Food will be an anchor tenant for many major real-estate developments in this country,” said Damian Mogavero, a culinary industry insider who spoke to MarketWatch ahead of the publication of his book “The … [Read more...]
China’s Latest Attempt to Prevent a Pummeling of the Yuan
China is the world’s second largest economy and a vital player on the global stage. An economic recession or financial crash in China would be felt around the world. Investors not paying at least some attention to China are not properly managing risk in today’s globalized financial markets. At Young Research, we have been following the slow, bubbly capital exodus from China. China’s foreign currency reserves are down over $1 Trillion over the last 17 months. Last year after allowing the yuan to depreciate to almost 7 per dollar, China put the brakes on further depreciation. That was paid … [Read more...]
These 2 Massive Firms are Dominating the ETF World
The Financial Times reports on the record breaking growth in the ETF industry and the two firms that are leading the charge. No surprise to see Vanguard and Blackrock continuing to dominate the space. Vanguard is a pioneer and a powerhouse in indexing, and Blackrock's ETF business has long been a leader in the space. Champagne corks should be popping in celebration across the exchange traded fund industry after a third successive year of record-breaking growth. But many ETF providers will have left their fizz on ice after again struggling to mount any meaningful challenge against BlackRock … [Read more...]
One Look at America’s Debt Will Make You Cringe
These two charts paint a disturbing picture for the future of America’s finances. Over the last eight years, the Federal Government has gone on a spending spree, more than doubling the ratio of government debt to GDP. One would think such a large increase in government debt would have been an expensive proposition, but it wasn’t. A zero interest rate policy from the Fed and a multi-trillion dollar bond buying program subsidized massive budget deficits. Our chart on the ratio of interest expense (gross) to GDP shows that Federal interest expense as a share of the economy is now lower than it … [Read more...]
Here is Why the Stakes are so High with NAFTA
In one of his first executive orders, President Trump has promised to renegotiate the North American Free Trade Agreement (NAFTA). Since the signing of NAFTA in 1994, trade among the member countries has increased significantly and North American supply chains now sprawl across Canada, Mexico, and the U.S. The stakes of a renegotiation are high, but the opportunity for the U.S. to strike a better deal is significant. Donald Trump has put “renegotiating” the two-decades-old North American Free Trade Agreement between the US, Canada and Mexico at the top of his economic agenda and threatened to … [Read more...]
This is why Investment in Infrastructure is Soaring
At Young Research, infrastructure assets have long-been one of our most favored investment sectors. The business models of many infrastructure businesses have appeal. The competition is limited, the cash flows are stable, the revenue streams are often inflation-adjusted, and the dividend payout ratios are generous. Recently, we have been less active in the space than in years past. Why? Great businesses don't always make great investments. As the Financial Times reports, institutional investors have been pouring billions into infrastructure assets in search of yield. A prolonged period of … [Read more...]
The Transformation Opportunity of the Supergrid
Here The Economist explains how the supergrid could transform the energy landscape. With ultra-high-voltage direct-current electricity, grids can be connected to power generation facilities over long distances. This has broad implications for renewable power generation as well as fossil fuel powered generation. THE winds of the Oklahoma panhandle have a bad reputation. In the 1930s they whipped its over-tilled topsoil up into the billowing black blizzards of the Dust Bowl. The winds drove people, Steinbeck’s dispossessed, away from their livelihoods and west, to California. Today, the … [Read more...]
Bond Bear Market Watch: Are we there yet?
We continue to watch the key 2.60% yield level on 10-year Treasuries. A meaningful break above the 2.60% yield level will likely signal the end of the over three-decade secular bull market in bonds and the beginning of a new secular bear market in bonds. The 10 year yield has retreated from its highs of late last year, but still remains within striking distance of the key 2.60% level. Savvy investors should continue to watch the direction of longer-term interest rates as they are likely to set the tone for a broader range of asset prices in 2017. … [Read more...]
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