At the Fed's last meeting, Bernanke and company decided to keep the monetary throttle pegged. Apparently, the massive real-estate bubble inflated by an ultra-loose monetary policy that almost caused a collapse of the global financial system hasn't changed the Fed's view on asset price inflation. The Fed continues to cite subdued inflation and low rates of resource utilization as reasons to maintain its ultra-loose monetary policy. Bernanke and company are, of course, completely ignoring asset prices. Gold is at a new all-time high, oil is up 155% from its low, the S&P 500 is up 57% from … [Read more...]
Only One Way to Go
October 2, 2009 The investment environment looks (a) great or (b) grim? Here is my answer. The yield on fed funds is basically zero. Money market yields are averaging 1%. A five-year CD will get you only 2.7%. The yield on the blue-chip Dow Industrials is a dangerously low 2.9%, and the yield on the NASDAQ is a miniscule 0.6%. See anything that appeals to you here? I sure don’t. When yields are historically low, they have only one way to go-and that, of course, is up. And when the yield on any investment rises, unless there has been a dollar change in the payout, the price of the asset will … [Read more...]
Empty Storefronts
September 25, 2009 Anecdotal evidence offers serious reason for concern about the economy! I just returned from a 2,000-mile Harley trip from Newport, RI, to Blowing Rock, NC, and back. Do you know what struck me the most, aside from the beauty of our country? Empty store fronts from one town to the next. We spend little time on the interstates. Most of our riding is through small towns of 25,000 people or fewer. We noticed the problem in Carlisle, PA, a beautiful little college town that I have ridden through a dozen times or more. I was also shocked by the empty store fronts in Newport’s … [Read more...]
Top 10 Mistakes #6
September 18, 2009 Entry #6 on my list of the 10 biggest mistakes investors make is failing to focus on the Fed’s federal funds rate beacon. Today the fed funds rate is basically zero. That means rates have only one way to go-up! Interest rates have been in a decade-long decline. But as you can see, the decline is over. The last big run-up in the fed funds rate occurred in the 1970s, when it soared to almost 20%. The ’70s were a decade of booming inflation as the Consumer Price Index (CPI) hit 20%, and not surprisingly the stock market in the ’70s went nowhere. By the early ’80s, the … [Read more...]
Top 10 Mistakes #7
September 11, 2009 How does a triad of a 20% prime rate, $200-per-barrel oil and $2,000-per-ounce gold sound to you? Are these numbers possible, or even probable? Oh yeah! And, in fact, the record-breaking deficits and printing press activity at home suggests these numbers may be underestimated. If Israel attacks Iran’s nuclear sites (a 50/50 bet), you’ll perhaps see oil prices well above $200 per barrel. Your strategy is to protect yourself from such an outcome while exposing yourself to minimal risk if you are wrong. In my strategy reports, I write about what you should do. And as a client … [Read more...]
Top 10 Mistakes #8
September 4, 2009 More money has probably been lost by overreaching for yield than by any other misguided strategy. Today, investors are really spooked. Money market funds, bank CDs, and treasuries offer little in the way of yield. That’s why I would suggest that you eschew all three, except for your emergency funds. I would also, given my views on inflation (expressed monthly in my letters and Matt’s client letter), avoid long maturities. A middle-ground approach is the way to go. I outline my views in both my monthly strategy reports and use this work to craft portfolios at Richard C. Young … [Read more...]
Top 10 Mistakes #10
August 21, 2009 In the coming weeks, I will lay out the 10 biggest potential tragedies and traps for investors this summer. Number 10 on my list is not recognizing that the recession is over. The media have largely missed the transition. But let me prove to you that the worst of the recession ended in March and that a modest recovery is already underway. On the menu bar at the top of this page, click Economy, then click Recession Watch. A series of slides (1-29) is set up for you. Click Next to start your slide show. Note carefully the slides numbered 3, 8, 9, 10, 17, 18, 19, 20, 22, 23, 24, … [Read more...]
Protect your Portfolio from the Blindside
On day one of football training camp, the first lesson many players learn is to play to the whistle. My coach used to drill this into all the new players. He'd say, "I don't care if the ball is 50 yards downfield, you play full speed until the ref blows the whistle." When the ball is downfield, the tendency of many players is to jog slowly toward the action until the whistle blows. After all, if you aren't in the center of the action, what's the point of playing full speed? That's an attitude that doesn't last long. For me, one scrimmage was enough to learn the importance of playing to the … [Read more...]
Earnings Will Soar
August 7, 2009 More than 75 million Americans began retiring last summer. And as a result of the ferocious 2008-2009 economic collapse, for thousands of them, retirement began a lot sooner than expected. Overall, jobs in the economy are being lost by the millions. See any winners here? I do, and big winners they will be. Large blue-chip American exporters will soon be in the catbird seat. As worldwide demand slowly begins to build momentum, U.S. exporters will get back on track. Not only are raw material costs low and interest rates (borrowing costs) low, but this cycle the labor component of … [Read more...]
Savers are Terrified
July 17, 2009 Despite pockets of strength, the bear market in stocks staggers on, eyeing, with an increasing daily concern, the RPM’s (Radical Progressive Movement) sweeping program of socialism and quasi central government nationalization. The stock market hated the Bush-fronted neo-con disaster, and rightfully, is even more scared of the “Chicago Cabal.” At mid-year, the Dow Industrials are down 4.8%, the Transports are down 9.9%, and the Utilities are down 4.4%. It’s a negative clean sweep for the blue-chip industries despite misleading strength in the more speculative market sectors. … [Read more...]