Risk and Return (Part 2)

By | 2013-04-30T08:39:02+00:00 April 30th, 2013|Global Market Update|

What is credit risk? The short answer is, credit risk is the risk that you won’t get your principal back. When you buy a corporate bond, you’re giving money to a company in exchange for a promise to give you money in the future. The time of repayment is usually fixed and contractual—the company can’t reduce or eliminate payments to its creditors without going through bankruptcy, which usually means stock-owners get wiped out and management loses their jobs. That’s why companies are usually pretty [...]

Risk and Return (Part 1)

By | 2013-04-29T09:12:15+00:00 April 29th, 2013|Global Market Update|

How can income-oriented investors survive in today’s climate? With the Fed keeping rates near zero seemingly forever, it’s hard. Many investment portfolios grew during the ‘80s and ‘90s and stagnated during the ‘00s, but now investors need their portfolios to produce income. In the past we’ve encouraged an all-of-the-above approach that uses corporate bonds, dividend-paying stocks, long-dated municipal bonds, and even limited partnerships to replace the income that formerly came from a simple ladder of Treasury Notes. We live in interesting times; what worked [...]

Yield Booking

By | 2013-04-26T09:39:31+00:00 April 26th, 2013|Global Market Update|

Will bonds ever return to “normal?” It’s a good question. For over four years the Fed has kept short rates near zero. With inflation running at 2% and the Fed’s target at zero, short rates have become a black hole, from which nothing seems to emerge. Long rates have drifted inexorably towards the event horizon surrounding the Fed’s short-rate singularity. But all things—even black holes—eventually come to an end. The Fed currently projects that the economy will gradually heal, and that unemployment will move [...]

A Star Is Born?

By | 2013-04-25T09:45:12+00:00 April 25th, 2013|Global Market Update|

Every decade there’s a new star. And every decade, it starts with skepticism. In the ‘70s it was gold; the ‘80s had Japan; the ‘90s saw the Nasdaq; and the ‘00s had China. These markets rallied some 10-fold during their heyday. What’s next? One approach is to look for the asset that no one wants. In the early ‘80s Japan just made cheap electronics and small cars; in the early ‘90s no one wanted US stocks. Both Japan and the US started with financial [...]

A Schizophrenic Market?

By | 2013-04-24T09:35:53+00:00 April 24th, 2013|Uncategorized|

Who’s right? Stock prices have been rising, which usually predicts a rising economy. At the same time, bond yields have been falling, which usually goes means trouble ahead. Which is it? Maybe it’s neither. Prior to the European Central Bank announcing last spring that they would do “whatever it takes” to defend the Euro, the global economy was characterized by slow growth and high instability. Investors were preoccupied with a potential repeat of 2008, of the “Lehman moment” that almost precipitated Depression 2.0. Fears [...]

A Chinese Fortune?

By | 2013-04-23T08:47:18+00:00 April 23rd, 2013|Global Market Update|

Why is the Chinese economy slowing? China’s GDP growth has slowed from 9% per year to 7.5%. Their torrid growth has produced tycoons in real estate, manufacturing, and financial services. Indeed, many have suggested that there are bubbles in these economic sectors, and that China’s slowing growth may pop the bubble. China’s average savings rate is around 50% of the economy—compared with around 5% in the US. This allows Chinese businesses to capitalize on profitable opportunities at the drop of a hat. But this [...]

Saving Ourselves?

By | 2013-04-22T10:04:17+00:00 April 22nd, 2013|Uncategorized|

Are we saving too much? That’s what it seems like, at least in the larger economy. Corporations had a near-death experience during the Financial Crisis, when the money market dried up. Since then cash balances have soared while capital expenditures have shrunk. Ditto for consumers. Excluding student loans, consumers have consistently deleveraged every year since the crisis. As a consequence, there is a savings glut. This is one reason why interest rates remain low, in spite of the Federal Government’s record borrowings. And if [...]

Getting Schooled

By | 2013-04-19T09:03:18+00:00 April 19th, 2013|Global Market Update|

Are massive student loans restraining economic growth? That’s what a new study by the New York Fed seems to show. College loans have grown dramatically in the past few years. Some 43% of adults under 25 now have student debt, up from 25% a decade ago. And the average debt--$20 thousand—is double what it was. That seems to be getting in the way of other kinds of borrowing, now. It used to be that folks with college loans were more likely to have mortgages [...]

Don’t Be Stupid

By | 2013-04-17T09:03:56+00:00 April 17th, 2013|Uncategorized|

What is bitcoin? Bitcoin is an alternative currency that is purely electronic. It’s distributed platform and open-source algorithms have made it popular among some who think it could be a viable way to store your savings--away from the prying eyes of the government. More trenchantly, it received a big boost when the government of Cyprus proposed to tax (i.e. confiscate) part of the wealth its citizens—down to a single euro. Is bitcoin a threat to the government? It could be. If many vendors accept [...]

Why?

By | 2017-07-17T12:34:40+00:00 April 16th, 2013|Global Market Update|

What’s the reason for yesterday’s tragedy? That’s all anyone wants to know. Amidst the speculation about pipe-bombs and foreign nationals, people want to put a label on the tragedy so they can begin to understand it. On one level, it’s because the act seems so senseless. After all, if someone would bomb a joyful event like the finish line to the oldest competitive marathon in the world, what would they not bomb? And there’s a natural curiosity that people have: how did this happen, [...]