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The Monday Melee: World War III

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What We’re Reading: Correlation and causation (tylergiven.com) Wanna be rich--get back to work! (theguardian.com) When not to load up on stocks (Fortune) Don't use one of these passwords. 25 commonly used password list 2014 (Visual.ly) Know Which Fish Are Low in Mercury With This Chart (lifehacker.com) The Market Makes a Case for Conservative Investing (WSJ) … [Read more...]

Politics Matter

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Even after the passing of some of the most economically damaging policies the nation has ever seen, there are still some investors who insist that politics and investing don’t mix. These investors somehow believe that economic and financial market performance are independent of policy. Seems hard to believe when you look at the structure of government. In the U.S., the President appoints the Federal Reserve Chairman and few would deny that the Fed plays a major role in interest rate markets and has influence over other asset markets. The Congress has the power of the purse. And one-fifth of … [Read more...]

GNMA Up Over 2% Yesterday

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I like your odds with Vanguard GNMA. Yesterday, with the DJIA falling 1.4% and the speculative Nasdaq down 1.6%, good 'ole GNMA was up about a half of a percent or 2% relative to the Nasdaq. For the year, GNMA is up 5.25% and yields 2.56%. Sometimes the difference between an ok investor and a great one is that the great one is able to take the ups and downs of the market. In the real world it's hard to do. But by having a little GNMA in your back pocket it becomes a whole lot easier. And more fun. … [Read more...]

Market Internals Point toward a Correction

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Markets internals aren't sending a signal of optimism. My first chart below on the NYSE advance-decline line looks like it is rolling over. The advance-decline line is a measure of market breadth. A healthy uptrend in the stock market should bring along all of the troops. When the advance-decline line begins to diverge from the broader market it is a sign of a narrowing market with fewer and fewer stocks propping up the broader indices. The second chart below shows the 5-day moving average of NYSE new lows and new highs. The number of new lows is soaring while the number of new highs is … [Read more...]

Sell Your House and Laugh Your Way to the Bank

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I've always felt that buying a home when I was young made sense. I know putting money in the stock market instead of buying a house can be more profitable, but I didn't have any money at the time so that really wasn't an option for me. When  I was starting out and working at Fidelity Investments, I worked out a deal to buy a three-family house with very little of my own money. I remember how hard it was asking my dad for a loan (it was less than $5,000) and working out the payment schedule. I rented out the top two units and lived in the bottom one, renting two of the three bedrooms in … [Read more...]

Monday Melee: Small-cap Edition

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Small Stocks Look Toppy What We're Reading Everyone's a stock market genius in a Fed-induced rally (Marketwatch) When not to load up on stocks (Fortune) Wanna be rich--get back to work! (The Guardian) Correlation and causation (Spurious Correlations) Know Which Fish Are Low in Mercury With This Chart (Lifehacker) … [Read more...]

The Party’s Over

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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

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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

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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...]