The Chinese yuan has fallen to a new six-year low as outflows surge. The central bank has either been overwhelmed by currency flooding out of the country, or it is allowing the yuan to drift lower to help the economy. The Chinese economy is the world's second largest, and China has long been a source of deflationary pressure in the world. A depreciating yuan points toward more deflationary pressure for the rest of the world. As you can see in our chart below, a depreciating yuan hasn't worked out so well for the U.S. stock market. Bloomberg has more on the weakening yen. China’s outbound … [Read more...]
Where Renting is More Popular than Buying
In the U.S., home ownership is regarded as a positive for society. The political class talks about an ownership society and promotes home ownership through the tax-code. Here Quartz explains why and how Germany became a country of renters. The home ownership rate in Germany, one of the richest countries in the world, is only 43% compared to 66% in the U.S. It’s just a fact. Many Germans can’t be bothered to buy a house. The country’s homeownership rate ranks among the lowest in the developed world, and nearly dead last in Europe, though the Swiss renteven more. Here are comparative data … [Read more...]
World’s Largest Fund now Reaching for Return. Should You?
Norway's $880 billion sovereign wealth fund is being urged to invest more of its portfolio in stocks. Who might be urging the world's largest fund to boost its stock allocation more than seven years into a bull market? The Norwegian government. According to a government-commissioned report, the Norwegian sovereign wealth fund should invest 70% of its assets in stocks, up from 60% today, which itself is up from 40% in 2007. Why has the Norwegian government gone googly-eyed for stocks? The Financial Times offers some insight. “With a higher share of equities the expected return will … [Read more...]
A Windfall in the Bond Market
After hiking interest rates for the first time in over a decade last December, the Federal Reserve has sat on its hands all year. Four interest rate hikes were the Fed's expectations in January, but a stock market correction scared off both the hawks and the doves. The Fed is now trying to signal that December is the next time it will hike rates, but it has cried wolf so many times, that markets no longer believe a hike is coming. This timid approach to interest rate policy has robbed many investors of interest income, but one segment of the bond market has defied the will of the Fed has … [Read more...]
Income Investing: These Bonds Can Help Reduce Interest Rate Risk
Many individual investors shy away from bonds that trade at a premium to par value because they don’t see the point in paying, say $11,000 for a bond that returns $10,000 at maturity. Here Fidelity offers a primer on premium bonds, why investors need not fear premium bonds, and how premium bonds can be used to reduce interest rate risk in a fixed-income portfolio. You can read the full post here. Some investors today would rather hold cash than buy bonds because they’re concerned that interest rates may rise and depress bond values. Premium bonds are not immune to rising rates—premium bond … [Read more...]
How much more Downside does the British Pound have?
According to Goldman Sachs, much more. Here's Goldman's take via Zerohedge: How Much More Sterling Downside? (via Goldman Sachs) 1. With the prospect of a 'hard Brexit' becoming a reality, investors who were previously expecting a 'soft' Brexit, or no Brexit at all, have updated their priors, and Sterling has depreciated about 5 percent over the space of a week against G10 currencies. GBP/$ is about 1.5 percent above 1.20, which is our 3-months forecast published on 5 July 2016. In a recent Global Markets Daily ("How Much Sterling Downside?, 6 Oct 2016), we highlighted that risks to our … [Read more...]
Can Cheap Money Continue to Fuel the Stock Market?
Low and negative interest rates have been a big factor in the magnitude and duration of the current bull market. As central banks yanked risk-free interest income from the world’s responsible savers and retired investors, many have been pushed (kicking and screaming if they are smart) into riskier assets. After years of getting bludgeoned by zero percent interest rates, the accepted wisdom on Wall Street now seems to be that as long as interest rates are held in the tank, the stock market will continue to float higher and higher. Stocks may be at one of their most expensive levels on … [Read more...]
This is why Lobster Prices are at an 11-year High
The Financial Times reports here that Lobster prices are at an 11-year high, up 50% from their level only three years ago. What is to blame for high lobster prices? Here the FT points to the rise in burger and lobster chains globally as the culprit. The demand for the crustacean comes as the success of burger and lobster restaurants has spurred popularity of the lobster roll which, along with the pork bun, has become a hipster favourite. In London, Burger & Lobster, which was launched in 2011, has been a pioneer in the genre and has expanded to other cities around the world. Its … [Read more...]
Are you sure College is the best path to a Good Paying Job?
If you are like most parents, you have aspirations of sending your kids to college. A college degree is seen by many as the best path to personal prosperity. A lot of families borrow heavily to put their kids through college. Outstanding student loan debt is now well over $1 trillion--double the amount outstanding eight years ago. The politicians want to make college more affordable for families. Some even want to make it free. That sounds generous, but as an astute observer of markets might ask, if you make college free, don't you increase the supply of graduates and thereby drive down … [Read more...]
A Proposal to Soak the Rich
Despite the United States having the most progressive income tax system in the developed world, the Wall Street Journal reports that Mrs. Clinton’s tax proposals call for doubling down on a soak the rich strategy. Regardless of your politics, this is just bad policy. When you tax something you get less of it. What are you going to get less of in this instance? Taxable income. High-income earners are the most capable of hiring high-priced lawyers and accountants to help them avoid, dodge, and reduce taxes. You might think that would dawn on the folk making these proposals since these … [Read more...]
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