The bloodbath in energy and materials sectors of the economy has pushed the real (inflation-adjusted) price of some commodities to multi-decade lows. Aluminum prices are trading near a half century low. Natural gas, wheat, hogs, and steel have also fallen sharply in real terms over the last couple of years. That is not to say that the prices of these commodities can’t fall further. I assure you they can, but if you are looking for contrarian opportunities, these are some rocks to turnover. … [Read more...]
The Year of the Speculator
If you are a serious long-term investor you are no doubt delighted to bid 2015 adieu. Last year was without question a year that favored speculators, traders, and rank amateurs. The big-cap U.S indices managed to eke out positive total returns for the year, but it was a handful of stocks (many of the most speculative variety) that carried the market. The average U.S. stock was down more than 4% last year. Take away Amazon, Netflix, Google, and Facebook and the S&P 500 would have finished in the red. The misery was widespread. The only U.S. equity mutual fund strategy that delivered … [Read more...]
The Most Impressive Dividend Records
Ben Graham was one of the most successful investors of all-time and the father of value investing. He also wrote the one and only investment book that most investors will ever need to read, The Intelligent Investor. If you’ve read The Intelligent Investor cover-to-cover, you are head and shoulders above the vast majority of the investing public. The amount of investing insight and wisdom packed into this single volume remains unmatched to this day. The Intelligent Investor's Most Valuable Advice Some of Graham’s most valuable advice was to the defensive investor. In Intelligent Investor, … [Read more...]
The 2016 Stock Market Outlook
Where are stocks headed in 2016? Will one of the longest bull markets on record finally come to an end in 2016 or is there enough gas left in the tank to push the market to higher highs? According to the strategists at Wall Street’s biggest banks, you should expect moderate stock market gains in 2016. The average estimate according to Wall Street strategists is for the S&P 500 to close the year at 2200—an 8% increase from yesterday’s close and a 10% gain from the time the estimates were made. If an 8% to 10% gain sounds like a familiar forecast from this crowd, that’s because it is. The … [Read more...]
This Chart Should Scare You
Below you are looking at a chart of the S&P 500 versus the Merrill Lynch High Yield Index. High yield bonds have had a dismal year. The Merrill Index is down almost 10% from its highs earlier this year, while the top heavy S&P 500 is only down a couple of percentage points. Bonds are higher in the capital structure than stocks. In the event of a default, bond holders get their money back before stock holders get a dime. So if investors are selling high-yield bonds because they are concerned about the prospect of default, shouldn’t they also be selling stocks? Historically, big losses … [Read more...]
The Energy Dividend
Oil and natural gas prices have continued to slide throughout 2015. An unseasonably warm start to the winter and elevated inventories have pushed natural gas prices to one of the lowest levels on record. Oil prices aren’t yet near their inflation adjusted low, but oil is now trading in the range that prevailed during much of the 1980s and 1990s. Low energy prices are nothing to cheer about if you are an oil or gas company or one of their employees, but lower gas, home heating, and electricity bills should, over time, help lift the consumer economy. … [Read more...]
Where’s the Santa Claus Rally?
December is usually the strongest month of the year for the stock market investors, but this December has gotten off to a slow start. As of yesterday’s close, the S&P 500 was down about 1.3% for the month. Is the weak start to December a signal that Santa might not be coming to Wall Street this year? That’s possible, but historically the Santa Claus rally doesn’t get underway for a few more days. Our chart shows that the strong gains in December don’t start until around mid-month. Mid-month also happens to coincide with the next Fed meeting. That raises the question: Will Chair Yellen play … [Read more...]
Chinese Yuan Makes new Low
The Chinese Yuan has quietly made a new 52-week low and the currency is now trading at its cheapest level relative to the dollar in more than 4 years. … [Read more...]
Recession Risk: Will Higher Rates Kill Growth?
With the odds of a rate hike at the Fed’s December meeting now approaching 75%, we are picking up chatter about the Fed making a policy error if they go through with a hike. This line of argument contends that the U.S. economy is too weak for a rate hike or series of rate hikes. Higher interest rates will just send the economy right back into recession and the Fed won’t have any tools to combat the downturn. While the U.S. economy may not be as strong as the Fed assumes (see our dismal chart on the Dow Transports vs. Industrials below), hiking rates in December wouldn’t be the policy error. … [Read more...]
This is Why Economic Policy Keeps Getting Worse
Noah Smith wrote a piece last week for Bloomberg View titled Most of What you Learned in Econ 101 is Wrong. Noah is a PhD economist who teaches at Stony Brook University. Noah tells readers that introductory econ textbooks have a big problem and that problem is that most of what is in them is probably wrong. Noah says: “In the last three decades, the economics profession has undergone a profound shift. The rise of information technology and new statistical methods has dramatically increased the importance of data and empirics. This means that many professional economists are no longer, … [Read more...]
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