Based on the historical performance of four bull markets that were preceded by devastating bear markets, the current bull market is approaching exhaustion. … [Read more...]
The Future of Oil Demand
According to the International Energy Agency, Organisation for Economic Co-operation and Development (OECD) countries'–i.e., rich countries'–oil demand peaked in 2005 near 50 million barrels per day. OECD oil demand is down 10% from the 2005 high, yet total oil demand is up over the same time period. The reason of course is that oil demand in non-OECD countries has risen 50% over the last decade–a 4% compound annual growth rate. Global economic growth is the primary driver of oil demand. My Oil Demand Growth vs. Economic Growth chart shows that economic growth and oil demand growth are … [Read more...]
The Payday Indicator
Alert! My Payday Indicator is signaling the worst environment for investors during my investment career. Conservative investors have been left with scraps on the floor; there isn’t even a decent chuck burger to be had, let alone a T-bone steak. At the end of 2009, investors were asked to take on more risk and receive less reward than at any other time since I’ve been in this business. My Payday Indicator replicates a portfolio invested 50% in Dow Jones Industrial Average stocks, and 50% in three-month T-bills. As you can see from my chart, the yield on this portfolio is the lowest on … [Read more...]
Jobs Growth a Paper Tiger
While the American economy created 162,000 new jobs in March (Chart 1), the number of unemployed rose. The much lauded success of the jobs report is a paper tiger. While the creation of 162,000 jobs is better than none, it didn’t even cover the number of new people added to the workforce. The numbers of both unemployed and underemployed (people who would like to work full time but can only find part time work) increased last month (Chart 2). While politicians crowed over the increase in jobs after the report, Ben Bernanke was more measured in his reading. “We are far from out of the woods,” … [Read more...]
Searching for Yield?
With yields of 0.15% on T-bills and 2.6% on five-year CDs, the temptation of many investors is to reach for yield. Don’t do it. When you reach for yield, you are either taking on too much credit risk or too much maturity risk. With a flood of government debt issuance in the pipeline, and a bloated Federal Reserve balance sheet, much higher interest rates are a dangerous prospect. Don’t forget that a seemingly modest 1% rise in interest rates could decimate a long-bond portfolio. I’m talking about losses upwards of 20%. That’s not what most bond investors sign up for. Instead of reaching for … [Read more...]
Young Research’s Favorite Energy Play
A conservative way to play a potential rise in the prices of natural gas, coal, and even oil is to invest in renewable power. In an environment of rising fossil-fuel prices, renewable power generation assets benefit the most. Why is that? The majority of the power generated globally comes from fossil-fuel-based inputs such as coal, natural gas, and oil. If the price of natural gas rises, for example, natural-gas-fired power plants would face higher costs. Those higher costs would of course be passed on to consumers in the form of higher electricity prices. Since prices are set at the margin, … [Read more...]
Lowest Mortgage Rates in a Lifetime
The three decade decline in mortgage rates is now at a trough. The Federal Reserve program to support the mortgage market ends today. If you haven’t refinanced your mortgage what are you waiting for? You may never see mortgage rates this low again in your lifetime. … [Read more...]
Here’s the $64,000 Question
The current bull market in stocks is now 12 months old. The S&P 500 has risen 74% since the March 2009 lows. After a mini-correction to start 2010, investors have aggressively bid up shares, driving the S&P 500 up 11% over the last two months to a new 52-week high. Many institutional investors jumped in early and as a group they are now fully invested, as evidenced by the low liquid asset ratio of stock mutual funds (read more here). But individual investors were late to the party. Two damaging bear markets in ten years caused some hesitation. The most likely catalyst for a … [Read more...]
Euro Breaks Through Key Support
Euro breaks through key support level. Next support level will be reached somewhere between $1.25 and $1.30. A weaker euro lessens the probability of an export-led recovery in the U.S. … [Read more...]
A Miracle Metal
Nature's supply of the element thorium is virtually unlimited. This silvery-white metal is mildly radioactive and wouldn't do you much harm if you carried a piece around in your glove compartment. A recent well-done technical paper in Wired estimates that a liquid fluoride thorium (LFT) reactor uses only one ton of raw thorium per gigawatt output. For a uranium-fueled light water reactor, 250 tons of raw uranium are required. The annual fuel cost for a LFT 1-gigawatt reactor is estimated at $10,000 versus $50 million to $60 million for uranium. The proliferation potential for LFT reactor … [Read more...]
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