“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years.” ― Alexis de Tocqueville In a nutshell, the above quote from Tocqueville explains the outcome of yesterday’s election. … [Read more...]
Housing Recovery: Your Best Investment Today or Already Overplayed?
Yesterday the Census Bureau released the September report on the number of Housing Starts and Building Permits. Both increased much more than expected—permits surged by 11.6%, and starts were up by 15%. After trudging along a Derpressionary bottom for more than three years, it is now safe to say that housing activity is finally picking up (prices may be a different story). But don’t get too excited. Despite the most accommodative monetary policy in the history of the republic, the 15% surge in starts only moves us from Depressionary levels to recessionary levels. Housing will of course … [Read more...]
The Burger Flipper Recovery Continues
The Bureau of Labor Statistics released the September employment report today. The headline numbers are an increase in non-farm payrolls of 114,000 and an unemployment rate of 7.8%. The payroll number was in-line with estimates for subdued jobs growth, but the 7.8% unemployment rate was a shocker to economists. According to Bloomberg, the average economist was looking for the unemployment rate to tick up a tenth of a point in September. Employment growth of only 114,000 is barely enough to keep up with growth in the labor force. In fact, the labor force increased by 418,000 last month, more … [Read more...]
The Peril of a Monetary Politburo
We’ve written plenty about the Fed and QE-infinity on this site over recent days, so we had planned to lay things to rest for a while, but then Minnesota Federal Reserve Bank President Narayana Kocherlakota came out with one of the most perilous ideas yet from the Fed. Kocherlakota was formerly viewed as an inflation hawk. In fact in April of this year, during a speech to the Southern Minnesota Initiative Foundation, Mr. K said “My own belief is that we will need to initiate our somewhat lengthy exit strategy sometime in the next six to nine months or so, and that conditions will warrant … [Read more...]
Bernanke: To Infinity and Beyond!
In case you missed it, last week Ben Bernanke rolled out another misguided money printing campaign. This isn’t QE3, it is QE-infinity. The Bernank opened the monetary spigot and isn’t shutting it off until he sees substantial improvement in the labor market, inflation and speculative bubbles be damned. And if the jobs picture doesn’t improve, the Fed plans to double down on its strategy. How will we know if the Fed’s actions cause the labor market to improve? We won’t and that is by design. The Fed has rigged the game. No matter the limited efficacy of quantitative easing, the press (and … [Read more...]
The Short and Sweet of the FOMC Meeting
The Fed announced today that it would restart the printing press at a rate of $40 billion per month. The newly printed money will be invested in Mortgage Backed Securities (since the Fed has already nationalized most of the treasury market). Including the extension of Operation Twist, the Fed will buy $85 billion per month in long-term securities. Don’t forget to send the Chairman a thank you card Mr. President. So even though QE II, zero percent interest rates, a commitment to hold rates at zero for what seems like forever, Operation Twist I and Operation Twist II have had almost no … [Read more...]
The Burger Flipper Recovery
Here is a shocker for you. Are you sitting down? Some of you might not like what I am about to say, but it has implications for your portfolio. You know those 4.5 million private sector jobs that President Obama boasts about creating? Yes, I know the President created nothing of the sort. Our discerning readers will point out that there has been no net job growth under Obama and that if it weren’t for all the folk who quit looking for work since the President took office, the unemployment rate would be over 11%. But it turns out that even those 4.5 million jobs the President is crowing … [Read more...]
Into the Abyss: The Bernanke Fed
Late yesterday, the Federal Reserve released the minutes from their last policy-setting meeting. In the minutes, Bernanke & Co. all but guaranteed investors that the Fed would fire-up the printing presses for a third round of money printing. The Fed has been dangling the carrot of QE3 in front of investors for months now. That’s partly why the S&P 500 held up better than foreign markets during the summer sell-off and why U.S. stocks are still up double digits for the year. But the meeting minutes signal that the Fed has decided to pull the trigger on more stimulus next month. Just in … [Read more...]
What’s Your Fund Manager Doing behind Your Back?
In a recent article titled Fund Managers Seduced by Facebook, Joe Light of the Wall Street Journal exposes some poor practices of actively managed mutual funds. Some of the funds that bought shares wouldn't normally be considered natural investors in a high-growth technology company like Facebook. For example, some of the demand for Facebook came from funds designed primarily to invest in dividend-paying companies or low-priced "value" stocks. Facebook is neither. If Facebook doesn’t fit the fund’s profile, why would managers invest in it? Most were probably looking to make a quick buck in … [Read more...]
Your Winning Formula for Dividend Investment Success
When we started Young Research’s Retirement Compounders (RCs) in 2003, the goal was to look for a compelling competitive advantage to make the RCs a big winner, especially during bad times. Our strategy was to accept underperformance during speculative market runs, regardless of the duration, with the expected tradeoff of better performance during bad markets. Patience is always required with such a strategy. The idea was never to beat the market over time or on a consistent basis. Rather, we fully expected the low risk RCs (both price risk and business risk) to trail the major market … [Read more...]
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