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...]
Fed Says Fed Most Important to Your Returns
We have noted often on this site and in our monthly strategy reports, that in recent years, Federal Reserve policy has become the main determinant of stock market performance. When the Fed opens the monetary spigot (or hints at it) stock prices rise and when they shut off the valve, prices fall. In a recent blog post, the Federal Reserve Bank of New York attributed over 80% of the return on stocks over the past two decades to, well, itself. The article titled The Puzzling Pre-FOMC Announcement “Drift”, sites a Fed report that finds “that since 1994, more than 80 percent of the equity … [Read more...]
Fed Counts its Chickens Before they Hatch
It is no secret that the hubris from the economists at the Federal Reserve is palpable, but a recent piece from San Francisco Fed president John Williams takes the cake. In the bank’s monthly economic letter Williams does a premature victory dance for the unconventional monetary policy and bashes the great Milton Friedman in the process. Below are some excerpts from his paper with my comments. Milton Friedman (1970) famously said, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than … [Read more...]
Job Creator Confidence Plunges
The NFIB Small Business Optimism Index plunged 3 points in June—its biggest drop in over two years. Nine out of the ten components in the index worsened last month. The only component that improved was credit conditions—no surprise given record low interest rates. But easy money doesn’t do much to stimulate the economy when businesses aren’t interested in expanding. And according to the NFIB small business survey, only 5% of businesses think now is a good time to expand—a level historically associated with recession. America’s job creators don’t want to expand because of the weak economy and … [Read more...]
Prepare Your Portfolio For More Money Printing
That didn’t last long. The post-meeting euphoria from the 20th summit to once and for all put an end to the euro-area debt crisis has officially ended. Spanish 10-year bond yields are back above pre-summit levels and at one point today they crossed 7%. Yields on Italian bonds have also risen in recent days, but not to the extent of Spanish bonds. It seems investors are losing patience with euro-area policymakers. Following each meeting, policymakers have announced plans to make a plan to announce a lasting solution to the debt crisis. Yet, after 20 iterations, the euro-area debt crisis rolls … [Read more...]
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