The S&P 500 has been on a tear since the Fed first started floating the idea of quantitative easing 2.0. Since August 31, the S&P is up more than 11%. The gains are of course nice to see, but the rally is a phony. Stock prices are not rising on improving fundamentals or cheap valuations. Stocks are rising simply because investors are anticipating that the Fed will print more money. For proof that the rally is a phony take a look at the performance of the S&P 500 in terms of a hard currency such as the Swiss Franc. My chart shows that in Swiss franc terms, the S&P 500 still … [Read more...]
TIPS: Paying to Lose?
What would you pay for inflation protection? Investors buying Treasury Inflation Protected Securities (TIPS) are now willing to pay as much as 0.37% annually for inflation protection. In other words, these investors are buying bonds that are guaranteed to lose money in real terms in order to protect their assets from inflation. Before you mock the idea, consider the alternatives. Nominal 5-year treasuries yield only 1.11%. Assuming inflation of 2%, that’s a negative .89% real return. In the treasury market these days, the winner is the investor who loses the least after inflation. … [Read more...]
Fed Makes Mistakes
The Fed Compounds Its Mistakes – Allan Meltzer, The Wall Street Journal “The Federal Reserve seems determined to make mistakes…Anyone can make a mistake, but wise people don't repeat the same one. Increasing inflation to reduce unemployment initiated the Great Inflation of the 1960s and 1970s…The most important restriction on investment today is not tight monetary policy, but uncertainty about administration policy. Businesses cannot know what their taxes, health-care, energy and regulatory costs will be, so they cannot know what return to expect on any new investment…The only lasting … [Read more...]
The Fed’s Stock Market Manipulation
The September jobs numbers from ADP and the Labor Department were released this week. The ADP survey showed contraction in private-sector jobs for the second month in a row. Economists were looking for a gain. The Labor Department’s nonfarm payroll survey showed private-sector jobs gain, but they were more than offset by a contraction in local government employment. On balance, both employment reports were soft and fell short of expectations. With Bernanke & Co. focused on unemployment, the Fed is now almost certain to restart its money-printing campaign following its November policy … [Read more...]
Employment Contracting
According to the ADP Employment Report, private sector payrolls contracted for the second month in a row in September. September’s payroll numbers fell well short of economists' estimates. If the government payroll numbers mirror the ADP report, you can guarantee another ill-advised round of quantitative easing will begin at the Fed’s next policy meeting. … [Read more...]
CRB Spot Index Hits All-Time High
Is it deflation that we should be worried about? According to the Fed, inflation is too low. That may be a temporary problem. The CRB commodity spot index just hit a new all-time high. The index is up 15% YTD. … [Read more...]
Bernanke’s Biggest Fear
The Fed created an uproar on Wall Street this week by changing the language in its post-meeting Federal Open Market Committee (FOMC) statement. The FOMC is, of course, the committee that sets monetary policy at the Federal Reserve. The new language that excited investors was the following: Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation … [Read more...]
Auto Loans Getting Longer
Here is an interesting chart. This shows the length of new car loans in months. Some car buyers are now financing auto loans for up to six years. The average, according to the below chart is 64 months. Either cars are lasting longer or buyers are reaching to buy more car than they can afford. … [Read more...]
Swiss Franc Smashes U.S. Dollar
The Swiss franc blasts through parity with the U.S. dollar. The franc is up more than 14% versus the USD since hitting a low in June of this year. … [Read more...]
From Alan Abelson’s Always Informative Barron’s Column:
Let's Hear It for Bad Estimates – Alan Abelson, Barron’s "China, it turns out, doesn't report gross-domestic-product data as most everyone else does. It announces a growth rate, but neglects to supply a quarterly breakdown of real demand. Absent such vital information, it's tough to get a grip on whether growth is healthily widespread or dependent on a handful of sectors...As Ben (we trust Mr. Simpfendorfer won't mind the informality) notes, "in the case of China, there is risk the country is spending too much on building highways and factories, resulting in overcapacity and bad … [Read more...]
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