A few years ago the Bank of England (BOE) used the chart below to explain the impact of money printing on the economy and financial markets. According to the BOE’s graph, there are two phases to quantitative easing, an impact phase and an adjustment phase. During the impact phase, there is a party on Wall Street. Asset prices soar far above what the underlying fundamentals would seem to support. The bonuses pile up and the liquor flows freely. Then, during the adjustment phase, economic activity and inflation pick up, but asset prices take it in the neck (red line). With the Federal … [Read more...]
The China Factor
With much of the investment world focused on geopolitical events in Europe and the Middle East and how much or how little money the Fed and the European Central Bank are going to print, China seems to have fallen off of the radar. It shouldn’t. China is a major player in the global economy. It is the world’s second largest economy and the world’s fastest growing large economy. China sucks up a majority of the world’s resources. It is the largest consumer of aluminum, copper, cotton, and coal just to name a few. If the Chinese economy craters, the world will feel the pain and if it … [Read more...]
The Economy’s Weak Link
One of the reasons this business cycle recovery has been one of the weakest on record is that it hasn’t been firing on all cylinders. The weak link among the cyclical sectors of the economy has been residential fixed investment. While there has been some recovery from the dark days of the financial crisis, adjusted for inflation, residential investment is no higher than it was 20 years ago. Non-residential fixed investment, which is made up of business investment in factories, equipment and intellectual property has already hit a new high. With the housing market looking more like it is … [Read more...]
Mutual Funds of the Future
"Never pick a stock again," proclaims the headline of a recent article by Money. The California Public Employees Retirement System is considering making cuts to its allocation of active managers. Meanwhile, robo-advisors are hawking a “new” model of investment management centered around broad based index ETFs (I’ll have more on robo-advisors in a future post). The financial press and many more in the finance industry are hailing index based ETFs as the savior of the investing masses. Is this the real deal? Are we finally seeing a secular shift in the money management business or is … [Read more...]
Higher Wages on the Horizon
Job openings hit a more than 13-year-high yesterday. The rising number of job openings signals continued improvement in the labor market. Job openings are also up as a percentage of the unemployed. There is now a job opening for every two unemployed workers. The higher number of openings signals that stronger wage growth may finally be on the horizon. My chart shows the ratio of job openings to unemployed workers versus the annual rate of change in the employment cost index. Job openings tend to lead wage growth by about six months. If we are to believe the signal being sent by the job … [Read more...]
Best Day to Buy a New Car: This Sunday
Here’s a fun post for you. According to data from Truecar, presented in the nifty infographic below, the best month of the year to buy a new car is August, the best day of the week is a Sunday, and the best time of the month is in the first few days of the sales month (not the same as calendar month—who knew). That makes this Sunday the best day of the year to buy a new car. Lucky you, if you are in the market for a new car. What if you already have plans this Sunday? No need to panic. Saturday is the second best day of the week to buy a new car. And when I say car, I really mean … [Read more...]
Best Bond Funds to Buy Now
What are the best bond funds to buy now? This is a simple question that is often unnecessarily complicated by investors. The best bond funds to buy now are the same bond funds you should have bought yesterday and the same bond funds you should buy tomorrow. But isn't past performance a poor predictor of future results? Indeed it is, but the best bond funds are not those that earned the highest return in any given year. The best bond funds are the cheapest bond funds. Cost is one of the most reliable predictors of mutual fund performance. Who offers the cheapest bond funds? For my … [Read more...]
Top 10 S&P 500 Stocks: 2014
You can learn a lot about the nature of a stock market rally simply by observing which stocks are leading the market. Below I present to you the list of the 10 best performing S&P 500 stocks since the Federal Reserve officially announced the third round of its quantitative easing program in September of 2012. It is true that the last leg of this bull market started earlier, but since QE3 officially started, the gains have been relentless and the corrections shallow. COMPANY SYMBOL RETURN SINCE 9/13/12 NETFLIX INC NFLX 628.8 MICRON … [Read more...]
Piping Hot Growth
Four Percent! Can you believe it? The first estimate of second quarter GDP growth was released this week and it came in at a piping hot 4%. That is the third highest quarterly growth rate since the recovery began and only the seventh time in the last 56 quarters that growth has been so high. But before you start celebrating, I should note that the 4% growth rate comes with an asterisks. Much of the growth in the second quarter was simply catch up from an especially weak first quarter. After revisions, the Bureau of Economic Analysis said GDP in the first quarter contracted at an annual … [Read more...]
The Only Stocks We Buy
You read last week about putting margin of safety to work in your portfolio. I told you about three strategies we use to pick stocks with the margin of safety in mind. The first and most important is that the only stocks we buy pay dividends. Below you’ll read an excerpt explaining the benefits of dividend investing from our free special report, Collecting Rare and Hard to Find Dividends. I’ll detail the other strategies in the weeks ahead. Reduce Risk with Dividend Stocks What’s more, dividends help reduce portfolio volatility. Figure 3 shows that high-yielding stocks have been less … [Read more...]
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