The chart below compares the spread (yield difference with treasuries) of the Merrill Lynch High-Yield Master Index to the S&P 500. The vertical axis for the Merrill Lynch spread is reversed to show falling spreads as rising (a positive). High-yield spreads and stock prices tend to move in lock-step, but tops and bottoms in spreads tend to lead tops and bottoms in stocks. The recent rally in the S&P 500 has not been confirmed by the performance in high-yield bonds. High yield bonds hit a lower low in September and their rally has now only brought spreads back to the level … [Read more...]
What’s on Your Bucket List?
“It’s not how fast you travel, it’s how far you go,” sings my friend Bob Morrison in his recently recorded song A Wheel Is A Wheel. If you live outside of Nashville, TN you may not know the name Bob Morrison, but you most certainly know his songs. He was the straw that stirred the drink turning Looking for Love into a hit for Johnny Lee—the song featured in the movie Urban Cowboy. He won a Grammy in 1980 for You Decorated My Life, was ASCAP Songwriter of the Year four times, and if you don’t know those songs, then you’ll most certainly recognize a few names from his expansive list of song … [Read more...]
The Monday Melee: China’s Unbelievable Growth
China released GDP numbers on Monday and despite claims of a deceleration in the Chinese economy, the official statistical bureau reported that growth was 6.8%, very near the target of 6.9%. "We Don't Believe Them" Danny Gabay of Fathom Consulting, and formerly of the Bank of England, told BBC Radio 4 that "Quite frankly we don't believe them. It's not just that they come in suspiciously close to the target, it's that they're produced remarkably quickly and rarely revised." (Businessinsider.com) Corporate Earnings Fears Corporations have flashing warning signals about China since at least … [Read more...]
Manufacturing Recession?
The latest readings on the health of the U.S. manufacturing sector came out this morning and they don’t paint a pretty picture. Industrial production has fallen in 8 of the last 9 months, and the year-to-year rate of change is now flirting with contraction. Manufacturing accounts for a much smaller share of the U.S. economy than it did in decades past, but it isn’t yet small enough to ignore. Stay tuned here. … [Read more...]
Successful Investing Is a Mindset
In the October issue of Richard C. Young's Intelligence Report, Dick Young wrote about the mindset of a successful investor. A successful investor must have "a master plan that allows [him or her] to find comfort through thick or thin." Success isn't a stroke of luck, it's the result of exceptional planning and hard work. Dick writes: Je Me Sens Bien As you read this month's strategy report, Debbie and I will be in Paris. Practicing her French yesterday, Debbie asked me if I knew the meaning of je me sens bien, with James Brown as a clue. Well, not knowing for certain, I guessed, "I feel … [Read more...]
A Day of Reckoning is Coming
Sorry to be dramatic, but it is true. There is a huge disconnect between what the Federal Reserve is saying it is going to do with short-term interest rates and what the bond market has priced in. The chart below from Bloomberg compares the path of interest rates based on Fed funds futures contracts and the median estimate of rates from the Fed’s policy setting committee. Based on the Fed’s latest projections, short-term interest rates are expected to be at 1.375% by the end of next year and 2.625% by the end of 2017. Sixteen out of the 17 FOMC participants project interest rates of … [Read more...]
Tory Burch’s Commencement Speech at Babson College
I watched this inspirational video over the weekend: … [Read more...]
The Monday Melee: Merger Mania
Mega Deals Dominating headlines today have been the merger of Dell and EMC, and the long, slow courtship of AB Inbev and SABMiller that looks like it might be close to a resolution. M&A Trends … [Read more...]
Biggest Stock Market Rally in Almost Four Years
The S&P capped its biggest 8-day percentage gain in almost four years yesterday—rising more than 7%. The catalyst for yesterday’s gains was the minutes of the latest Federal Reserve meeting. Investors decided the meeting minutes were dovish (they weren’t, they were neutral at best) and bid up shares in a fast and furious late day rally. … [Read more...]
Connecticut’s Pension Ranks #48
You read that right. Connecticut’s funding of its pension obligations ranks #48 in the country only to be outdone by Kentucky and Illinois. Connecticut, with a pathetic 51.9% of assets to pay future obligations isn’t even close to dealing with its unfunded pension obligations. Like so many other states in similar predicaments, i.e.: Rhode Island, they continue to hope that the stock market will bail them out. Connecticut assumes that it’s pension assets will earn a future rate of return of 8%. But, as I’ll point out, that basically means that it will need a 12% average annual return from the … [Read more...]
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