My Favorite chart for the month of October comes courtesy of Zerohedge. Zerohedge points out the schizophrenic policy views of St. Louis Fed President James Bullard. Bullard is sometimes a policy hawk and other times a dove, but mostly he is just consistently inconsistent. Just days before the market corrected, Bullard was out boasting about a strengthening economy and the need to remove monetary accommodation (read end QE and hike rates). Days later he had a change of heart. His change of heart didn’t come from the economic data that the Fed regularly assures us its policy is dependent … [Read more...]
Pop Quiz: Who Said It?
1.) “I will be the first to say that it is always difficult to get monetary policy just right. But the Fed’s analytical prowess is top-notch and our forecasting record is second to none” 2.) “Q: Can you act quickly enough to prevent inflation from getting out of control?A: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now. Q: You have what degree of confidence in your ability to control this [inflation]? A: … [Read more...]
Do This to Avoid Catastrophic Portfolio Losses
If you are retired or soon to be retired, you know firsthand how the stress of managing money rises as retirement becomes a reality. Time, once your closest ally is now a nagging foe. The security blanket of steady wage income to get you through down markets is gone. Your primary source of income in retirement is your portfolio. If you suffer a catastrophic portfolio loss, you don’t just lose money, you lose your livelihood. The prospect of suffering a catastrophic loss can be nerve-racking. Every stock market correction is met with fear and angst. Is this the big one? Should I pull my … [Read more...]
The Heroin Connection
Heroin is a highly addictive drug. It is an opioid like morphine, codeine, and methadone. One of the reasons heroin is so addictive is that our brains have receptors for opiates that our body naturally produces—the endorphins produced during or after exercise for example. When an addict starts using heroin daily, his brain stops producing natural opiates because it is getting all the opiates it needs and more from the heroin. If the heroin addict continues using for years and years, he slowly trains his own body to cease all natural dopamine production. A dependency is created where the … [Read more...]
Luxury Goods Indicator Ringing the Alarm Bells
Young Research’s Luxury Goods Index is a modified market-cap weighted index of some of the world’s most prestigious luxury brands. You would recognize many of the names in the index. The components include Tiffany’s, Louis Vuitton, Hermes, Bulgari, and Southeby’s among others. No single stock accounts for more than 20% of the index. Our luxury goods index provides a real-time snapshot of the health of the high-end consumer. Why should you care about the health of the high-end consumer? The high-end consumer has become vital to both U.S. and global economic growth. In 2012, the top 5% of … [Read more...]
Thoughts on the Markets
Volatility has picked up in financial markets in recent weeks. It is still mostly noise at this point, but the sell-off has done damage to the technical picture of the market. The NYSE Advance/Decline line for stocks is in the tank, key moving average levels, support levels, and trend channels have been breached by various indices. Foreign stocks have sold off sharply. Commodities are sending a signal of deflation and/or global recession. It seems as the Fed ends quantitative easing, the rose-colored glasses are coming off. Of course, the Fed will try to jawbone markets higher and you … [Read more...]
Zero Percent Rates Holding Back Economy
Did you catch the story from last week where former Fed Chairman Ben Bernanke told an audience at a Chicago conference that he recently tried to refinance his mortgage and was denied? After all I’ve written about Dr. B. you didn’t think I was going to let this story slip by did you? It’s too juicy to pass up, but don’t worry, I’ll keep it clean. Bernanke attributed the rejection to mortgage lenders tightening credit conditions too much. That may be true, but I would like to offer an alternative explanation that the academic minded Bernanke (and his former Fed colleagues) may be … [Read more...]
The World’s Most Dangerous Mutual Fund?
Fannie Mae and Freddie Mac investors are toast. That is the verdict the market delivered last week after a judge threw out a lawsuit to stop the government from seizing most of their profits. I don’t want to get into the details or merits of the case, but it is important for you to know that the common and preferred shares of Fannie and Freddie took a beating following the ruling. The Fannie Mae preferreds plunged almost 50% on the day of the announcement and they are down more than 60% since September 30th. The ruling on the mortgage giants' shares was notable, but what was most … [Read more...]
Can U.S. Stocks Decouple?
U.S. stocks are still up YTD, but the iShares MSCI All Country World Index excluding the U.S. is now down over 4% in 2014. Can U.S. stocks continue to diverge from foreign markets? With about half of the revenue of S&P 500 companies coming from foreign economies that may be a tall order. Better buckle up. … [Read more...]
Politics Matter
Even after the passing of some of the most economically damaging policies the nation has ever seen, there are still some investors who insist that politics and investing don’t mix. These investors somehow believe that economic and financial market performance are independent of policy. Seems hard to believe when you look at the structure of government. In the U.S., the President appoints the Federal Reserve Chairman and few would deny that the Fed plays a major role in interest rate markets and has influence over other asset markets. The Congress has the power of the purse. And one-fifth of … [Read more...]
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