According to official statistics, China’s economy has grown at an average rate of about 7.5% in recent years. But PhD Copper says something has gone awry with the Middle Kingdom’s command style economic model. China is the world’s largest consumer of copper. If Copper prices are plummeting, the odds are China has something to do with it. The red flag that copper prices are sending on the Chinese economy is also being confirmed by the weakness in the Shanghai Composite Index. The performance of Chinese stock prices don’t seem to correlate with robust economic growth. … [Read more...]
Is Tesla a Buy?
If you've been following the financial headlines this week you no doubt caught wind of a major upward spike in shares of Tesla Motors. Tesla has been one of the hottest stocks on the market over the last year. It is a bubble-lover’s bubble stock. While the S&P 500 has gained over 30% over the last twelve months, Tesla is up over 600%. The catalyst for the spike in Tesla stock earlier this week was an upgrade from Adam Jonas, the Morgan Stanley analyst covering the company. Mr. Jonas decided that Tesla wasn't worth the $153 per share he had estimated only a few weeks prior, but $320 … [Read more...]
The Hidden Good News on the Labor Market
On February 15, Barron’s ran what many economists (especially those at the Federal Reserve) would consider a provocative piece on the labor market. Barron’s reporter Kopin Tan points out for readers that the labor market may be tighter than many economists are presuming. At Young Research we’ve long held the view that a meaningful portion of the high unemployment rate is structural. Structural unemployment is a problem, but not one that can be remedied with short-term stimulus. If you are a Barron’s subscriber the article is well worth a thorough read. Below are the highlights with the chart … [Read more...]
Fed Warns of Dangerous Markets
In a study that could only be sanctioned by the independent (read unaccountable) Federal Reserve, the astute researchers at the Fed Bank of Chicago have come to the profound conclusion that faster and less transparent markets (aka high-frequency trading) pose dangers that aren’t properly appreciated. The investing public recognized the dubious role of high frequency trading about 2 hours after the 2010 flash crash. Leave it to the Fed to slam the barn door long after the horse has bolted. Bloomberg reports: Faster and less transparent markets pose risks that require more study, according … [Read more...]
How to Trump the Average Trader
After a mini-correction to begin the year, the stock market has staged an impressive rally. The Dow has risen 5.6% in only two weeks and it is now within a couple of percentage points of moving into the green for the year. The much more speculative NASDAQ index has already achieved that feat. The NASDAQ index is up 1.6% so far in 2014 after rising 38% last year. Compare that to the 26% gain in the blue-chip Dow for 2013. The NASDAQ outperformed in 2013 and it is doings so again YTD. What does the continued outperformance of the NASDAQ say about the stock market? This is a speculators … [Read more...]
Fed President Proves Common Sense Innate
Trying to prove that common sense and good judgment must be innate, Narayana Kocherlakota, the President of the Federal Reserve Bank of Minneapolis and graduate of the venerable Princeton University at the age of 19 is out with a speech on monetary policy that makes Argentina’s central bank sound credible. For those of you who don’t follow this stuff regularly (something you can give thanks for on Turkey Day), Kocherlakota is the Fed president who 12 months ago flip-flopped from hawk to uber-dove. In a speech yesterday, displaying more than a touch of hubris, Kocherlakota, likens today’s … [Read more...]
Household Balance Sheets Send Ominous Signal
The Federal Reserve released its quarterly flow of funds data yesterday. One of the key items in the Fed’s quarterly report is the net worth of households. The good news from the report is that household net worth increased in the second quarter. The bad news is that growth in household net worth once again outpaced growth in disposable income. Since the value of an asset is determined by the income that asset can be expected to generate, there should be some relationship between household net worth (assets minus liabilities) and income. That is to say that asset prices should be bounded by … [Read more...]
Bernanke’s Jobs Farce
Matthew Klein at Bloomberg is out with an insightful piece on the folly of the Bernanke Fed’s obsession with “the data.” As we’ve pointed out regularly on this site and in our monthly strategy reports, the Fed is implementing emergency monetary policy using signals from economic data that is 1.) a poor predictor of future economic growth and 2.) regularly revised. Klein summaries a new paper that lays out in detail large distortions in the monthly jobs data. This is silly, but it wouldn't matter except for two recent developments. First, the Fed has become hypersensitive to monthly jobs data. … [Read more...]
7 Fed Meeting Takeaways for Investors
Below are some thoughts on the implications of the Fed’s dovish surprise at yesterday’s FOMC meeting. The actual economic impact of the Fed’s decision not to taper its money printing campaign isn't all that significant. What is significant and more meaningful is the signal the Fed sent, and the implications that signal may have for future policy and investment strategy. 1.) The probability of a late-1990s style stock market bubble-and-bust just increased measurably. The U.S. stock market is already at one of its most richly valued levels in history. The Fed’s dovish posture at the latest … [Read more...]
Fed: Money Printing Not Effective After All
Five years after the initiation of the largest money printing campaign the world has ever seen, the Fed is finally coming to the same conclusion that many Americans reached years ago—pumping trillions of dollars of freshly printed money into the financial system does not create lasting economic growth. As we've argued on this site and in our monthly strategy reports regularly, quantitative easing does little for the real economy. It does unduly inflate stock prices and encourage manipulation, mispricing, and misallocation, but as far as creating economic growth? There is very little evidence … [Read more...]
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