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
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
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
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
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?
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...]
They’ll Wonder How You Live So Well
The businesses of the top 10 companies in the Vanguard Dividend Achievers fund could easily be part of your Saturday morning errands, especially if the kids and family are visiting. You could start the morning by leaving the house with a can of Diet Pepsi, stop by a Chevron station to fill up the tank, then swing into Walmart for some baby supplies like Pampers and Johnson’s Baby Shampoo for the little ones and Ibuprofen for yourself just in case you use the self-checkout lane. Hop back in the car, zip over to ExxonMobil for a car wash, scoot across the street for a Coke and a Big Mac, and … [Read more...]
TIPS: Paying to Lose?
What would you pay for inflation protection? Investors buying Treasury Inflation Protected Securities (TIPS) are now willing to pay as much as 0.37% annually for inflation protection. In other words, these investors are buying bonds that are guaranteed to lose money in real terms in order to protect their assets from inflation. Before you mock the idea, consider the alternatives. Nominal 5-year treasuries yield only 1.11%. Assuming inflation of 2%, that’s a negative .89% real return. In the treasury market these days, the winner is the investor who loses the least after inflation. … [Read more...]
A Steaming Stew of Toxic Bonds
With short-term interest rates pinned near zero and long rates moving downward on the prospect of more Fed money printing, conservative investors and savers are being starved of yield. These investors are busy scouring the investment landscape for opportunities to pick up yield. The hucksters and promoters smell opportunity. If it’s yield you need, Wall Street has you covered. The Street’s financial engineers have cooked up a steaming stew of complex structured products that promise all the income you could ever want. How does an 11% yield sound? Wall Street’s peddlers can set you up with a … [Read more...]
The Fed’s Stock Market Manipulation
The September jobs numbers from ADP and the Labor Department were released this week. The ADP survey showed contraction in private-sector jobs for the second month in a row. Economists were looking for a gain. The Labor Department’s nonfarm payroll survey showed private-sector jobs gain, but they were more than offset by a contraction in local government employment. On balance, both employment reports were soft and fell short of expectations. With Bernanke & Co. focused on unemployment, the Fed is now almost certain to restart its money-printing campaign following its November policy … [Read more...]
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