Bill Dudley is the President of the Federal Reserve Bank of New York. He is a member of Janet Yellen's inner circle. Dudley is the only Fed official not appointed by the President who gets a permanent vote on monetary policy. In a speech yesterday, Dudley seemed to endorse the idea that what the economy really needs is for more homeowners to again start using their homes as ATM machines. This was of course what boosted economic growth during the real estate bubble, but as most Americans found out (but apparently not Mr. Dudley) home-equity extraction is an unsustainable and dangerous source of … [Read more...]
This is what makes Independent Research a Must
It is no secret that research from the big brokerage houses once had a reputation for being compromised by investment banking relationships, but following the dotcom bust, the regulatory apparatus assured the investing public those problems were solved. That now seems like a sick-joke perpetrated on unsuspecting investors. Investors who follow the markets closely knew from the start those regulations wouldn't fix the problem. Wall Street is and always has been in the business of distributing securities. The research-arms of the big banks should be thought of as a branch of the marketing … [Read more...]
What Happens When Microsoft Buys a New AI Startup?
Microsoft has announced the acquisition of the deep learning/artificial intelligence startup, Maluuba. The AI program's focus is on natural language understanding, and Microsoft expects the technology to help improve question and answer and decision making systems. Harry Shum, Executive Vice President of Microsoft's Artificial Intelligence and Research Group wrote about the acquisition saying: We’ve recently set new milestones for speech and image recognition using deep learning techniques, and with this acquisition we are, as Wayne Gretzky would say, skating to where the puck will be next — … [Read more...]
Are You one of the 22% Making this Sinful Mistake in Your Portfolio?
According to the Employee Benefit Research Institute, 22% of people in their 60s have more than 80% of their 401(k)s allocated to equities. With only a few years left until retirement, an 80% allocation to stocks is asking for trouble. An 80-20 mix of stocks and bonds can experience crushing losses that are difficult to recover from—especially if one is already taking an income stream from the portfolio. Our chart shows the drawdown of an 80-20 portfolio invested in the S&P 500 and the Merrill Lynch Government and Corporate Bond Index and rebalanced annually. The drawdown is the … [Read more...]
This is a Horrifying Black Swan Risk
Artificial Intelligence offers profound promise for future productivity and optimal decision making. AI is likely to touch or have an impact in almost every industry. But there are also some with deep knowledge in the technology industry who fear a frightening outcome. The Financial Times has the story. A new arms race in artificial intelligence and robotics risks spiralling out of human control, according to a report paving the way for next week’s World Economic Forum in Davos. The WEF’s annual Global Risks report highlights mounting concern at the few regulatory constraints on AI … [Read more...]
Amazon’s Assault on the Mainstream Retailers Yields Massive Gains
This is a powerful graphic from the Visual Capitalist. At year-end 2016, Amazon had a market cap of $356 billion. The combined market cap of Walmart, Target, Best Buy, Macy’s, Kohl’s, Nordstrom, JCPenney, and Sears is only $298 billion. Amazon is now worth more than most of America’s major department stores combined. Revenues at big box and department stores fell by almost 40% over the last ten years. Sales at Amazon increased more than ten-fold. What about profit? Despite Amazon’s 10-fold increase in sales, there has only been a marginal improvement in profit margins and much of that … [Read more...]
This is the Milestone You Should Watch, not Dow 20,000
Many investors are focused on the Dow hitting the 20,000 milestone, but compared to another key technical level, Dow 20,000 is a B-lister. Here the Financial Times points out that the key technical indicator to watch is the 2.60% yield level on the 10-year treasury note. According to former “Bond King” Bill Gross, if the 10-year yield crosses the 2.60% threshold, it will signal the start of a secular bear market in bonds. The FT has more of the details. The Janus portfolio manager, dubbed the “Bond King”, warned that if the 10-year yield crosses that threshold, it will signal the start of … [Read more...]
Euphoria is Rampant in this Segment of the Market
Last week we pointed out a major bullish shift in investor sentiment readings toward stocks (see here). We suggested that if bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria, the surge in sentiment may be an indicator that we are in the fourth and final stage of the rally. In another sign that the dominant mood in the market may be euphoria, Zerohedge relays a report from TrimTabs on fund flows into ETFs. TrimTabs is a research outfit focused on equity market liquidity. TrimTabs called the inflows into U.S. equity ETFs since the election the … [Read more...]
This is the Blue Print to Make America’s Financial Economy Great Again
Trump’s victory offers an opportunity to finally enact some of the reforms needed to rein in the Fed and put a stop to the Fed’s incestuous relationship with the academic economic establishment. Here, Danielle DiMartino Booth, a former advisor to the president of the Federal Reserve Bank of Dallas, calls out some of the problems (there are many more) with the Fed and solutions to improve the institution. The first thing an engaged Congress can do is prevent future missteps on the Fed’s part. In November 1977, the Federal Reserve Act was revised to expand the central bank's mandate to … [Read more...]
China Just Delivered a Devastating Blow to Speculators
China just hammered speculators with a surprise strengthening of the yuan. The yuan made its biggest-ever two-day move. China has been burning through currency reserves in an effort to keep the yuan from depreciating too rapidly. The surprise strengthening is a new tactic likely intended to drive speculators out of the currency and to strengthen China's hand in currency markets. The Financial Times has more of the details: China’s renminbi has made its biggest-ever two-day gain as strong data and shrinking liquidity offshore wrongfooted China bears and helped push the dollar lower around … [Read more...]
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