In the Financial Times, John Plender explains that the debt being taken on to fight coronavirus will never be repaid, just inflated away. He writes: A more fundamental question about the recovery relates to the central banks’ asset-purchasing programmes. William White, former head of the monetary and economic department at the Bank for International Settlements, points out that repeated monetary easing to stimulate demand brings forward private spending in time, with purchases being financed by debt accumulation. As the weight of the debt burden increases, the effectiveness of monetary easing … [Read more...]
Silver Cheapest to Gold in Three Centuries
Henry Sanderson reports in Financial Times on the historically wide gap in the valuations of the two most common precious metals for investment. He writes: Investors are betting on a rally in silver, after the gap between gold and the industrial metal soared to its widest level in more than three centuries. In March the price of an ounce of gold was 125 times higher than the same amount of silver — a record going back to at least 1687, according to data compiled by Ross Norman, a veteran gold trader. But since then the gap has closed to about 113 times, and analysts say more gains for … [Read more...]
Are Offices a Thing of the Past?
Working in an office, at least full-time, might be a thing of the past in a post-coronavirus world. Bloomberg's Doug Alexander reports on how many firms are adopting work-from-home or blended workplace options for their employees. The implications for commercial real estate could be significant. He writes: Bank of Montreal anticipates that as much as 80% of its staff -- or about 36,000 employees -- may adopt new flexible arrangements that blend working from home with going into the office even after the Covid-19 pandemic subsides. The virus prompted the bank to make a sweeping reappraisal … [Read more...]
Will Investor Bailouts Lead to Higher Taxes?
The Fed has gotten praise from both sides of the aisle for acting quickly and boldly in recent weeks. Who doesn’t like a bailout when it stops their portfolio value from cascading? Well…cascading if you consider a rise in investment-grade corporate bond yields from 2% to 4.5% during what is likely the greatest and most abrupt halting of economic activity in modern history. For some perspective, we’ve included the chart on the Bloomberg Barclay’s Investment Grade Corporate bond index below. During the pandemic, yields rose a little higher than their year-end 2018 level and they were half of … [Read more...]
Why Crude Oil Could Be Immune to the Coronavirus
Cuneyt Kazokoglu explains why, despite the damage the worldwide coronavirus shutdown has done to the oil market, crude won't be killed by the virus. He writes in the FT: The coronavirus crisis has thrown the oil market out of balance and like other forecasters, we expect an unprecedented contraction in oil demand this year. But while some are arguing that we have seen the peak in 2019 with consumption never recovering, if anything, the pandemic is likely to significantly delay the structural transformation of the world’s economy away from oil. Although global consumption will fall this … [Read more...]
The View from a Bear
Has the market bottomed, or will we retest the lows? As much as most of us want to believe there is an expert with the answer, the truth is nobody knows for certain whether we are going to retest the lows or sail to new highs. Savvy investors recognize good investing isn’t about picking the right outcome. Good investing is assessing the probability of a range of outcomes and factoring in an adequate margin of safety for the times you are wrong. Gary Shilling offers a pretty negative scenario below. Even if you don’t agree with Shilling’s views, the probability of that scenario isn’t … [Read more...]
New Investors Treating the Stock Market Like a Casino
This is a troubling trend. Many of you have been around the block and have seen the mistakes day traders and speculators made during the dotcom bubble. Based on Bloomberg’s reporting, it sounds like a new crop of investors is likely to learn that when you treat the stock market like a casino, the house usually wins. Sarah Ponczek writes: Back on March 23, it seemed like stocks would never stop falling. Congress was struggling to pass stimulus, coronavirus cases were climbing, futures were pinned to their bottommost tick and $10 trillion in value had vanished. Meanwhile in Northern … [Read more...]
Fed Goes Junk Shopping
The Federal Reserve has destroyed investors' sense of risk. Bloomberg's Davide Scigliuzzo, Craig Torres, and Lisa Lee explain how no junk debt is too risk for the Fed. They write: Long before the coronavirus pandemic would bring business to a standstill all across America, Surgery Partners Inc., a sprawling network of outpatient clinics, already had its share of financial problems. This was no secret on Wall Street. Surgery Partners’s majority owner, the buyout firm Bain Capital, had loaded so much debt onto the company’s books that when it went to the market last year to refinance … [Read more...]
Global Central Bank Takeover of Private Economy Continues
Megumi Fujikawa reports in The Wall Street Journal on the Bank of Japan's efforts to prop up the country's economy, writing: The Bank of Japan said it would nearly triple its maximum holdings of corporate debt to ¥20 trillion ($186 billion), joining other global central banks in trying to prop up companies during the coronavirus pandemic. The BOJ forecast that Japan’s economy would shrink between 3% and 5% in the year ending March 2021. With many companies seeing a sharp fall in revenue, central banks are concerned that a spiral of bankruptcies could result if borrowers don’t have ready … [Read more...]
What a Wretched Idea
Former Fed Chair Narayana Kocherlakota wants the Fed to take rates negative by 0.25% at its next meeting. Why? Apparently a quarter-point rate reduction in short-term interest rates is going to stimulate growth. What Mr. Kocherlakota’s model seems to be missing is that negative rates will destroy a multi-trillion dollar money market industry, hurt banks when you need them to lend to stimulate growth, and encourage Americans and American banks to hold money in cash. Mr. Kocherlakota nods to some of these problems, but he likely underestimates America’s financial innovation and "Don’t … [Read more...]
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