Well sort of. James Paulsen of Wells Capital Management, one of the most outspoken bulls of today’s bubble market is raising the red flag of caution. Why has Paulsen turned more bearish on the U.S. stock market? Based on a recent missive posted on his website it would appear Mr. Paulsen has fingered the biggest bubble (in a broad sense) in at least six decades as a risk to the market. As Mr. Paulsen rightly points out, the Median P/E of NYSE stocks is at a post-war record. That is saying something. This is the most expensive stock market in your investing lifetime. And it’s not just P/E … [Read more...]
Oil Collapse more than a Supply Story
Copper is said to have a PhD. in economics because it has been one of the most reliable real-time barometers of the economy. With much of the world’s demand growth coming from outside the U.S. it might be more appropriate to say copper has a PhD. in global economics. What does copper and the global economy have to do with oil? Well, the narrative in the financial press is that the collapse in oil prices is a supply story. The explanation I read most often is that the Saudi’s are in a battle for market share with U.S. shale producers (as if this makes any sense, topic for another day … [Read more...]
Gold vs. Oil
Oil is a steal in terms of gold. The ratio of gold to oil is trading at more than two standard deviations above an almost five decade mean. A long-short would be your play here. … [Read more...]
Utilities Stocks on a Tear
The S&P 500 Utilities index has been on a tear. We have long favored utilities stocks at Young Research & Publishing. Last year when many investors were dumping utilities we were advocating new positions (see December 2013 Global Investment Strategy - subscription required). The consistent dividends, high-barriers to entry, and regulated returns have appeal for serious long-term investors. But the strength of the recent upleg might not be all roses and butterflies. The S&P 500 Utilities index is up a staggering 34% YTD making it the best performing sector in the index. Over half … [Read more...]
Inappropriate Monetary Policy
Yesterday, the Bureau of Economic Analysis released its final estimate of third quarter GDP growth. Growth for the third quarter came in at a blistering 5%. That is the best quarter of economic growth in over a decade. It should now be evident to even Yellen & Co., that the Fed’s monetary policy is absurdly inappropriate. Interest rates should not still be at zero, nor should they have been held there for so long into the recovery. The last time we had nominal GDP growth this good, short-term interest rates were over 5%. By holding interest rates at zero for the entire recovery and … [Read more...]
Off the Charts
Over the last two days the S&P 500 has gained a staggering 4.48%. That’s more than half of the return one might expect in an average year…in only two days! To put that into perspective, the chart below shows the two-day percentage change in the S&P 500 with plus and minus three standard deviations overlaid. That is three standard deviations, not two which is a rare occurrence in itself. The probability of a normally distributed series coming in more than three standard deviations above the mean is .0015% or a 1 in 666 chance. … [Read more...]
Where to get 7% Yields
If you are a buyer of assets and a long-term investor, the recent turbulence in markets should be viewed as a welcome development. You may find this unusual, but I must admit that I enjoy periods of volatility. Not because I relish in the misery of others, but because volatility creates opportunity. And finding compelling investment opportunities for Young Research’s subscribers and our investment boutique clients is what I spend much of my time doing (it's true, I have no hobbies). It has been a tough slog over the last couple of years. Zero percent interest rates and trillions of money … [Read more...]
What Oil Price Correction?
Below is a chart of the price of oil denominated in rubles. In Russia, a cratering currency has resulted in higher, not lower, oil prices for consumers and producers. … [Read more...]
The Most Powerful Fiscal Stimulus
The mainstream press and their liberal Keynesian allies in academia (that means you Princeton & Berkeley) have made a sport out of roasting the Republican led Congress for reining in government spending. Lower government spending, we are told, kills growth at best and crashes the economy at worst. It is a remarkable feat to argue that bigger government leads to stronger growth when centuries of evidence prove otherwise. Those economies where the share of government is smallest most often are the fastest growing. Viewed through the lens of Washington insiders, the gridlock and … [Read more...]
Higher Pay Coming down the Pike
The Labor Department’s JOLTs survey came out yesterday and it showed continued improvement in the outlook for the labor market. The ratio of job openings to the number of unemployed workers rose to a post recovery high. When the number of job openings to the number of unemployed workers rises, it signals that labor demand is outpacing labor supply. When demand outpaces supply, higher prices are often the result. The historical lead time for the ratio of job openings to the number of unemployed is about six months. It looks like higher wages are coming down the pike. … [Read more...]
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