Young Research & Publishing Inc.

Investment Research Since 1978

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Gold is at $1,400

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Don't tell me there is no inflation, the price of gold has topped $1,400/ounce. The Dow Jones Industrials are up year-to-date and over the past three years. But even so, Gold has beaten the DJIA Total Return (i.e. dividends included) handily as shown in my two charts. Make sure you are not caught off guard here. Your exposure to stocks must be well compensated by owning high yielding dividend payers. … [Read more...]

Selected Quotes from the Myth of the Rational Market

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I recently finished reading The Myth of the Rational Market by Justin Fox. The book is a chronological history of modern economic and financial theory. It’s lighter reading than it sounds. The book is a good read for those of you with a deep interest in finance or economics. I read the book on my iPad using Amazon’s Kindle app. This was the first book I read from cover to cover electronically. Reading for long periods of time on the iPad takes some getting used to, but it does have its advantages. One of benefits of the Kindle app is that all of the items you highlight and notes you make … [Read more...]

Could Bernanke’s Inflation Plan Backfire?

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The Fed officially announced a second round of money printing this week. The central bank plans to buy $600 billion worth of Treasury securities by June of next year. To pay for the bonds, the Fed will deliver electronically printed money to the member banks. One of Bernanke’s goals with this second round of money printing, as described in his November 5 Washington Post op-ed, is to inflate stock prices. Looking past the fact that this is a highly irresponsible policy decision, the question is, will it be successful? Generally when the Fed wants to inflate asset prices, it has no problem … [Read more...]

Wilmington Trust “Take-under”

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The $10 billion, Delaware-based Wilmington Trust was acquired this week in a “take-under” by M&T bank.  The take-under was announced the same day that Wilmington reported a massive unexpected loss due to souring construction loans. The regional banking  sector continues to struggle with loan losses. … [Read more...]

The Takeaway from Buffett’s Decision to hire Todd A. Combs

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This week, Berkshire Hathaway announced that Todd A. Combs would be joining Berkshire as an investment manager and likely successor to Warren Buffett in the role of chief investment officer. Mr. Combs is an obscure 39-year-old manager of the $400-million Castle Point Capital hedge fund based in Greenwich, Connecticut. Not much is known about Mr. Combs. As of this writing, the media still hasn’t been able to track down a photo of the new Berkshire investment manager. That’s remarkable in this day and age. We do know that Mr. Combs graduated from Florida State University and Columbia Business … [Read more...]

TIPS Signal Higher Inflation

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The bond market made history this week: investors paid to lend the government money. The government may want to throw a parade. Investors shouldn’t. On Monday, five-year Treasury inflation-protected securities (TIPS) were auctioned off at a negative yield of -0.55%. Demand was so strong that the Treasury auction was oversubscribed by a 2.84 bid-to-cover ratio—the number of bids received divided by the number of bids accepted. Anything above a ratio of two is considered a successful auction. TIPS can be an attractive inflation hedge because the principal value increases with inflation. As a … [Read more...]

Stock Returns at Half the Risk

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Including dividends, the S&P 500 is now up 7.5% YTD. Not bad. At a 7.5% compounded annual return, you would double your money every 10 years. But when you consider the volatility that stock market investors had to endure to earn that 7.5%, it doesn’t sound so compelling. Study my chart below. The grey line is the growth of a $100 investment in the S&P 500 at year-end 2009. To start the year, the S&P fell more than 4%. Then it rallied about 15% over the ensuing three months. When sovereign debt issues intensified in Europe, the index sold off sharply, falling more than 15% from its … [Read more...]

The Phony Stock Market Rally

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The S&P 500 has been on a tear since the Fed first started floating the idea of quantitative easing 2.0. Since August 31, the S&P is up more than 11%. The gains are of course nice to see, but the rally is a phony. Stock prices are not rising on improving fundamentals or cheap valuations. Stocks are rising simply because investors are anticipating that the Fed will print more money. For proof that the rally is a phony take a look at the performance of the S&P 500 in terms of a hard currency such as the Swiss Franc. My chart shows that in Swiss franc terms, the S&P 500 still … [Read more...]

Are You Bullish?

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The sentiment survey done by the American Association of Individual Investors (AAII) shows that individual investors are bullish on stocks. The AAII’s weekly investor sentiment survey asks members if they are bullish, bearish, or neutral on the stock market for the next six months. Last week, 47.1% of respondents were bullish, and only 26.8% were bearish. That’s a spread of 20 percentage points, which is high based on recent history. As you can imagine, the weekly investor sentiment survey can fluctuate quite a bit from week to week, so it is useful to look at a moving average. I smooth the … [Read more...]