Bloomberg's Sarah Ponczek reports on the surge of retail investing in stock markets. She writes: Everyone knows retail investors dived back into the market as stocks rebounded. Now, evidence is starting to build that their buying has become a key driver of the beaten-down shares that are dominating the rally. Companies that have been soaring are in many cases the same firms that have seen skyrocketing interest at brokerages popular with individual investors. Turnover is surging: average daily volume for these stocks has occasionally been 30 times what it was in 2019. Maybe small-time … [Read more...]
Do Stocks Always Beat Bonds Over the Long Run?
The WSJ reports on new work that shows historically investment-grade bonds have beaten stocks in 40% of ten year periods. What’s more, in many 10-year periods the return on bonds is only about a percentage point less than the return on stocks. With Treasury bond yields nearing rock bottom levels, it would seem to be a cinch for stocks to beat Treasuries over the coming decade, but today’s historically lofty stock valuations make the calculus more complicated. And if you are willing to venture beyond the safety of Treasuries, the return opportunities in corporate bonds aren’t as depressed as … [Read more...]
The #1 Reason to Oppose Bailouts
Bill Dudley, the former President of the Federal Reserve Bank of New York is out with an op-ed in Bloomberg expanding on what the Fed’s bailouts mean going forward. Dudley points out the problems with bailouts. His solution is unfortunately the very reason bailouts must be opposed in the first place. It won’t be long before the likes of Liz Warren and her allies seek retribution for the bailouts in the form of higher corporate taxes, tighter regulation, and outright bans on certain activities. And to be honest, its hard to argue that leveraged hedge funds and leveraged mortgage REITs are … [Read more...]
Multi-Channel is the Only Way Forward for Retailers
In retail, companies with strong e-commerce platforms fared much better than those lacking a strong online presence. Dick’s Sporting goods was one of the relative winners in brick and mortar retail. Dick’s made investments in its online platform pre-COVID that allowed the firm to roll out a curbside pick up a few days after the company closed all of its stores. Sales were still down 30% year-over-year in the quarter, but it could have been worse. Kohl’s reported sales down 45% for the quarter. The Coronavirus crisis should be a wakeup call to all brick and mortar retailers. Being able to … [Read more...]
Dudley: Moral Hazard Unleashed by Fed’s Emergency Programs
The Federal Reserve's emergency coronavirus programs have unleashed the possible dangers of moral hazard in financial markets once again. Former NY Fed President William Dudley explained the situation to Bloomberg. Alister Bull reports: Federal Reserve support for U.S. corporate debt, designed to preserve market functioning during the coronavirus pandemic, could have the unintended consequence of encouraging more risky behavior, said former New York Federal Reserve Bank President William Dudley. “People who have high-yield debt that’s outstanding, a lot of times that’s happened by choice,” … [Read more...]
Mortgage Delinquencies Soar
Shockingly, but unsurprisingly, mortgage delinquencies soared last month. Worst hit were lodging and retail loans. Joe Rennison writes for the Financial Times: The percentage of commercial property loans left unpaid by borrowers in the US more than trebled last month, in a sign of a deepening crisis in the $1.3tn market for bonds backed by the mortgages. The delinquency rate on loans underpinning commercial mortgage-backed securities rose from 2.3 per cent in April to 7.4 per cent in May, according to the data service Trepp. Borrowers are considered delinquent when they fail to make a … [Read more...]
Is Remote Working About to Set Off a Flight to the Suburbs?
Laura Forman reports in The Wall Street Journal: The rise of remote working could empower renters in places like New York City and San Francisco to finally buy homes—just not necessarily in those cities. That could be good news for major online real-estate companies such as Zillow ZG +0.47% and Redfin RDFN -0.47% once the market thaws out. Transactions have plummeted globally as a result of the coronavirus pandemic. Global real-estate tech strategist Mike DelPrete says short-lived transaction declines of as much as 90% have been observed in cities in China, South Korea and Italy at the … [Read more...]
How will the U.S. Repay $30 Trillion in Debt?
With Congress considering yet another stimulus bill with the price tag measured in trillions, Victor Davis Hanson offers a sobering reminder of what comes next. The deficit is expected to exceed $4 trillion soon and the national debt may climb to $30 trillion or nearly $100,000 for every American. How will the United States sustain this level of debt, let alone repay it? VDH offers five ugly choices. Inflation looks like the most expedient option for the political class. Negative Interest Rates One, Americans would be forced to live with permanent near-zero interest rates, or … [Read more...]
Don’t Follow Europe into Banning Bank Dividends
At The Financial Times, Greg Baer makes the case against banning bank dividends. He writes: Leaving aside its putative benefits, a blanket dividend ban imposed outside the current regulatory framework would come with a substantial cost. It would make it difficult for investors to value banks, and thereby make them decidedly less investable. Investors might logically prefer companies whose boards of directors retain authority to maximise value for shareholders, so long as all regulatory requirements are met. This would continue a worrisome trend. The market value of US banks, relative to … [Read more...]
GMO on the Risk-Reward in Stocks and Competitive Capitalism
Jeremy Grantham’s GMO often offers useful insight. GMO’s head of asset allocation was interviewed by Barron’s recently. Below are some of the highlights. Emphasis is ours. Barron’s: You just more than halved the stock allocation in your flagship funds. What’s worrying you? Ben Inker: We were getting very nervous about how much the markets had gone up. The risk/reward trade-off for equities had really gotten a lot worse than it was in March. Value stocks at this point are trading at some of the widest spreads we have ever seen. The optimistic scenario is: We get a vaccine relatively … [Read more...]
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