J.P. Morgan, the nation’s biggest bank, plans to cut exposure to companies that don’t align their operations with the Paris Climate Accord. Apparently, firms that don’t agree with J.P. Morgan’s political views on climate don’t deserve loans. Thankfully, there are thousands of banks still operating in the U.S. that are willing to lend to these apparent “climate heretics.” There are many reasons to rein in the big banks, but this may top the list. Billy Nauman reports in The Financial Times: JPMorgan Chase says it is shifting its financing portfolio away from fossil fuels after facing years of … [Read more...]
Are Index Funds Still Diversified?
Just because you own an index fund, doesn’t mean your portfolio is properly diversified. Goldman Sachs estimates that only five stocks account for almost 40% of the Russell 1,000 Growth index. As Bloomberg points out here, if you are an active growth fund manager, the concentration of stocks such as Apple has reached such an extreme level that it has become the only stock that matters for relative performance. Lu Wang reports: Apple Inc.’s unprecedented market weight creates headaches for stock managers when it rallies: They never own enough of it. That dynamic played out vividly in the … [Read more...]
Inflation Targeting A Losing Strategy
At Bloomberg, Richard Cookson explains why "inflation targeting is a very stupid policy." He writes (my emphasis added in bold): In trying to increase by a fairly random amount an index of prices that they largely can’t or shouldn’t control, central banks couldn’t have done much more harm. They’ve crushed the savings and finance industry by slashing interest rates to historically low levels and driven the prices of all financial assets to a point where the phrase “unprecedented” scarcely covers it. Interest rates, bonds, credit, equities, foreign exchange: Not a single market is … [Read more...]
Is Consolidation Coming to Mutual Fund Industry?
Are the activist shareholders coming for the mutual fund industry? In The Wall Street Journal, Corrie Driebusch explains that Trian Fund Management has taken positions in Invesco and Janus Henderson Group and plans to push a merger. She writes: Shareholder activist Trian Fund Management LP has taken big stakes in investment firms Invesco Ltd. and Janus Henderson Group PLC and plans to agitate for deal making aimed at building a rival to the biggest asset managers in the world. Trian has accumulated 9.9% stakes in both Invesco and Janus Henderson, with the two positions totaling roughly … [Read more...]
Why Ultra-Low Interest Rates are Bad for You, the Economy, and Inflation
If the Fed sticks to its forecast of leaving interest rates at zero for another three years, the U.S. economy will have gone through a 15-year period where interest rates were at zero for about 12 of those years. What a gut punch to investors in or nearing retirement. The cost of safe retirement income has never been as expensive as it is today. If you want return even if it ends up being ephemeral return, you have to take more risk. To the Fed’s way of thinking, low-interest rates stimulate economic growth and stoke inflation. Retired investors be damned! Yet, since the Fed moved … [Read more...]
Cracks Form in Fed’s Unprecedented Rate Policy
Cracks could be forming among Federal Reserve officials as some begin to question the feasibility of the Fed's "lower for longer" rate policy. Nick Timiraos reports for The Wall Street Journal: Federal Reserve promises to hold interest rates very low for a long time could pose a dilemma once the pandemic is over: how to deal with the risk of asset bubbles. Those concerns flared when Dallas Fed President Robert Kaplan dissented from the central bank’s Sept. 16 decision to spell out those promises. The Fed committed to hold short-term rates near zero until inflation reaches 2% and is likely … [Read more...]
New York Just Keeps Getting Worse: 40% Jump in Bankruptcies on the Way
New York City has taken 2020 hard. It's been one of the areas hardest hit by COVID-19, and has seen an unnerving spike in crime and violence. In response the city has been shut down, and many people have fled for greener pastures. Those left behind are now facing bankruptcies and closures. Bloomberg's Josh Saul and Henry Goldman report: (Bloomberg) -- The pandemic has battered New York City businesses, with almost 6,000 closures, a jump of about 40% in bankruptcy filings across the region and shuttered storefronts in the business districts of all five boroughs. It’s going to get … [Read more...]
New Deal Creates one of the Largest Independent U.S. Shale Producers
A new deal between Devon Energy and WPX Energy will create one of America's largest independent shale producers. The deal is worth $2.56 billion, and was spurred on by investor interest in consolidation in the Permian Basin's shale oil industry. Rachel Adams-Heard and David Wethe report for Bloomberg, writing: The transaction, which includes a deal premium of about 2.6%, will see Devon shareholders own approximately 57 percent of the combined entity, the companies said Monday in a statement. Shares of Devon and WPX rose, indicating investor enthusiasm for the deal. The plunge in oil prices … [Read more...]
Regulators Zoom in on Blank Check Firms (SPACS)
Special-purpose acquisition companies (SPACS), also known as blank check firms, have become a bit of a fad lately. The excitement around SPACS has drawn the attention of the SEC, which is giving them some new scrutiny. Dave Michaels and Alexander Osipovich report for The Wall Street Journal: Blank-check companies that have raised tens of billions of dollars to acquire hot startups are under the microscope at the Securities and Exchange Commission. Such companies, also called special-purpose acquisition companies, or SPACs, are shell-like entities that go public in order to raise cash for … [Read more...]
European Auto Consumers Don’t Want What their Governments Are Selling
Like drivers in the U.S., Europeans prefer SUVs over tiny cars with no speed or cargo space. Those understandable preferences though are bumping up against strict goals the EU has set for lowering automobile-generated emissions of CO2. William Boston and Andrew Barnett report for The Wall Street Journal, writing: In the early years of Europe’s effort to curb emissions, manufacturers were able to rely on growing engine efficiency as well as regulatory exemptions and loopholes to cut emissions. But as the goal became more demanding, pressure rose to develop new technologies, especially electric … [Read more...]
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