Markets internals aren't sending a signal of optimism. My first chart below on the NYSE advance-decline line looks like it is rolling over. The advance-decline line is a measure of market breadth. A healthy uptrend in the stock market should bring along all of the troops. When the advance-decline line begins to diverge from the broader market it is a sign of a narrowing market with fewer and fewer stocks propping up the broader indices. The second chart below shows the 5-day moving average of NYSE new lows and new highs. The number of new lows is soaring while the number of new highs is … [Read more...]
The Party’s Over
A few years ago the Bank of England (BOE) used the chart below to explain the impact of money printing on the economy and financial markets. According to the BOE’s graph, there are two phases to quantitative easing, an impact phase and an adjustment phase. During the impact phase, there is a party on Wall Street. Asset prices soar far above what the underlying fundamentals would seem to support. The bonuses pile up and the liquor flows freely. Then, during the adjustment phase, economic activity and inflation pick up, but asset prices take it in the neck (red line). With the Federal … [Read more...]
The China Factor
With much of the investment world focused on geopolitical events in Europe and the Middle East and how much or how little money the Fed and the European Central Bank are going to print, China seems to have fallen off of the radar. It shouldn’t. China is a major player in the global economy. It is the world’s second largest economy and the world’s fastest growing large economy. China sucks up a majority of the world’s resources. It is the largest consumer of aluminum, copper, cotton, and coal just to name a few. If the Chinese economy craters, the world will feel the pain and if it … [Read more...]
The Economy’s Weak Link
One of the reasons this business cycle recovery has been one of the weakest on record is that it hasn’t been firing on all cylinders. The weak link among the cyclical sectors of the economy has been residential fixed investment. While there has been some recovery from the dark days of the financial crisis, adjusted for inflation, residential investment is no higher than it was 20 years ago. Non-residential fixed investment, which is made up of business investment in factories, equipment and intellectual property has already hit a new high. With the housing market looking more like it is … [Read more...]
Top 10 Funds in 2014
What is working in the stock market this year? I ran a Morningstar screen of the top performing U.S. focused Large-cap blend (combination of growth and value) funds to find out which ones are beating the market YTD. Out of the 467 large-cap blend funds in the Morningstar database, about 94 have bested the S&P 500’s 9.74% YTD return. The top performing fund according to Morningstar is Upright Growth, up 20.1% YTD. How have Upright Growth and the other funds at the top of the heap beaten the market YTD? Among the Top 10 performing funds on the Morningstar list, the five largest … [Read more...]
Monday Melee: Strong Rail Traffic
Rail Traffic Signals Strong Growth What we're Reading Worst Things to Buy on Amazon (Kiplinger) Here's Why Fed Needs More Diversity of Opinion (Yahoo) The house made from 4,000 video cassettes and two tonnes of jeans (The Guardian) … [Read more...]
Yields at Highest Level in Years
Don’t look now, but interest rates are at a more than three-year high. Short-term interest rates that is. The yield on three year treasury notes has crossed the 1% threshold. I know, a 1.08% yield for three-year paper is nothing to brag about, but it could be worse. From late-2011 to mid-2013, the average yield on three-year treasury notes was 0.35%. Do you know how long it takes to double your money at a 0.35% interest rate? I’m going to tell you. It takes 199 years. If you are putting away money for the grand kids, better change the will to make it your great, great, great grand kids. At … [Read more...]
How to Save Your Retirement Portfolio
I must have been 17 at the time. I had recently sold the little Nissan Sentra I drove during high school and I bought a sports car. Every teenager’s dream, right? A hot new sports car just as I was getting ready to head off for college. Think of all the possibilities. Well sort of. It was a 1987 Pontiac Firebird. Okay, so maybe I didn’t have the most refined taste in cars. The Firebird was a 2.8 Liter V6 automatic with power steering. Quite a bump up in performance from the manual transmission 90 HP Nissan Sentra with power-assist steering. The Sentra had the power of a John Deere … [Read more...]
Who’s Winning the Ugly Contest?
Over recent years, investing in the world’s largest currencies has been a game of picking the ugliest currency. The dollar, the euro, and the yen all have structural flaws. The question for investors has been which one is the ugliest. Last year, the yen won the ugly contest. This year it looks like we are going to crown a new winner. The euro has fallen by about 6% versus the dollar compared to a 1.1% drop for the yen. … [Read more...]
The Most Overrated Economic Indicator
The monthly employment report was released today. The headline payroll number in the employment report is probably the most overrated economic indicator released each month. Investors put far too much emphasis on a monthly data point that is revised twice in the following two months and then again once every year. In an economy with over 140 million workers, the Bureau of Labor Statistics attempts to determine how many jobs were added each month. Then it guesses at how many were added at businesses that it doesn't survey, and layers on top of that a seasonal adjustment that again skews the … [Read more...]
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