In a recent article titled Fund Managers Seduced by Facebook, Joe Light of the Wall Street Journal exposes some poor practices of actively managed mutual funds. Some of the funds that bought shares wouldn't normally be considered natural investors in a high-growth technology company like Facebook. For example, some of the demand for Facebook came from funds designed primarily to invest in dividend-paying companies or low-priced "value" stocks. Facebook is neither. If Facebook doesn’t fit the fund’s profile, why would managers invest in it? Most were probably looking to make a quick buck in … [Read more...]
Transports Signal Trouble
Our chart of the Dow Transports compared to the Dow Industrials indicates that the transports are breaking down on a relative basis. Resistance established in March and May is about to be broken through, indicating the transports are falling behind the industrials at a faster pace. Transports lead the stock market, and weakness in the economy is often telegraphed by their performance first. Continued weakness compared to the Dow Industrials would not be a good sign for the economy. … [Read more...]
Your Winning Formula for Dividend Investment Success
When we started Young Research’s Retirement Compounders (RCs) in 2003, the goal was to look for a compelling competitive advantage to make the RCs a big winner, especially during bad times. Our strategy was to accept underperformance during speculative market runs, regardless of the duration, with the expected tradeoff of better performance during bad markets. Patience is always required with such a strategy. The idea was never to beat the market over time or on a consistent basis. Rather, we fully expected the low risk RCs (both price risk and business risk) to trail the major market … [Read more...]
Fed Says Fed Most Important to Your Returns
We have noted often on this site and in our monthly strategy reports, that in recent years, Federal Reserve policy has become the main determinant of stock market performance. When the Fed opens the monetary spigot (or hints at it) stock prices rise and when they shut off the valve, prices fall. In a recent blog post, the Federal Reserve Bank of New York attributed over 80% of the return on stocks over the past two decades to, well, itself. The article titled The Puzzling Pre-FOMC Announcement “Drift”, sites a Fed report that finds “that since 1994, more than 80 percent of the equity … [Read more...]
Fed Counts its Chickens Before they Hatch
It is no secret that the hubris from the economists at the Federal Reserve is palpable, but a recent piece from San Francisco Fed president John Williams takes the cake. In the bank’s monthly economic letter Williams does a premature victory dance for the unconventional monetary policy and bashes the great Milton Friedman in the process. Below are some excerpts from his paper with my comments. Milton Friedman (1970) famously said, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than … [Read more...]
Job Creator Confidence Plunges
The NFIB Small Business Optimism Index plunged 3 points in June—its biggest drop in over two years. Nine out of the ten components in the index worsened last month. The only component that improved was credit conditions—no surprise given record low interest rates. But easy money doesn’t do much to stimulate the economy when businesses aren’t interested in expanding. And according to the NFIB small business survey, only 5% of businesses think now is a good time to expand—a level historically associated with recession. America’s job creators don’t want to expand because of the weak economy and … [Read more...]
Prepare Your Portfolio For More Money Printing
That didn’t last long. The post-meeting euphoria from the 20th summit to once and for all put an end to the euro-area debt crisis has officially ended. Spanish 10-year bond yields are back above pre-summit levels and at one point today they crossed 7%. Yields on Italian bonds have also risen in recent days, but not to the extent of Spanish bonds. It seems investors are losing patience with euro-area policymakers. Following each meeting, policymakers have announced plans to make a plan to announce a lasting solution to the debt crisis. Yet, after 20 iterations, the euro-area debt crisis rolls … [Read more...]
How to Get Rich
I suspect that not many investors would own variable annuities if they knew more about them. But learning the ins and outs of variable annuities is like watching sausage being made. Don’t bother. You don’t want to get sick. Believe me when I tell you there are much more suitable investments for you to own. Yes, I know the arguments that are made for owning variable annuities in substantial portfolios, but come on, they’re like numbers 98 and 99 on a list of 100 things to do first with your money. A variable annuity is a salesman’s dream. The commission is hefty, and the sales pitch of … [Read more...]
Northern Lights: Investing in the Nordics
Citizens in the four largest Nordic countries enjoy peaceful, happy lives. The U.N.'s World Happiness Report ranks Denmark as the happiest nation in the world, followed by Finland and Norway. Sweden comes in close behind at seventh happiest. The Nordics have a strong rule of law. All four are among the six least corrupt countries, according to Transparency International. IMD ranks the four major Nordic economies among the world's 20 most competitive. The World Economic Forum's Global Competitiveness Index also ranks them in its top 20, with Sweden and Finland ranking third and fourth, … [Read more...]
Housing Market: Looking for a Direction
Housing market data released this week revealed a mixed bag. Home prices measured by FHFA were up 0.8% compared to the month before and the number of permits to build new homes increased more than expected. Meanwhile the number of housing starts was lower than expected. The volatile MBA Composite Applications index fell slightly, pulled in either direction by higher numbers of refinancing applications and lower numbers of applications for new home purchases. Monday’s survey of homebuilders recorded a slight improvement in their sentiment. The housing market appears to be stuck in neutral. … [Read more...]
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