FED

  • 29 May
    Are You Ready? The FED Says More Tightening Ahead

    Are You Ready? The FED Says More Tightening Ahead

    • The FED’s meeting minutes clearly signal more tightening ahead.
    • Inflation has consistently been above 2% in 2017, so we can say “bye bye” to low interest rates.
    • There’s a rosy scenario for the economy and a negative one. In both, stocks are bound to fall.

    Introduction

    Inflation is an extremely important factor concerning anything related to investing. Over time, there’s a huge difference between real (inflation adjusted) and nominal returns. Therefore, we always have to keep an eye on inflation and invest accordingly to minimize the risk of seeing inflation eat up our returns, and to maximize our real returns. More →

  • 05 May
    The Market Is Dumb And Getting Dumber

    The Market Is Dumb And Getting Dumber

    • The number of analysts is declining, stocks don’t react to earnings nor news anymore, and the underlying economic environment is rigged.
    • However, as investors, we have to always look at risk and reward as there is always a way to profit.
    • Protecting yourself from market ignorance doesn’t even cost much.

    Introduction

    I would define a dumb investor as one who doesn’t think about risk in relation to reward, and therefore I fearlessly say: the majority of investors are behaving in a pretty dumb way.

    This is a heavy statement, especially considering markets have performed nothing short of spectacularly in the last 8 years. As evidence, the S&P 500 is up three-fold since 2009 and continues to strongly march ahead. More →

  • 21 Apr
    Are We Already In A New Bear Market?

    Are We Already In A New Bear Market?

    • The biggest investor of them all just said that he will start cashing out. Hopefully, this won’t lead to a bear market, but it will certainly put the brakes on further growth.
    • Economic signals are mixed, the outlook is uncertain and as much as the low unemployment rate is positive, historically, that isn’t a good sign for the future.
    • As always, we’ll discuss what to do in this environment.

    Introduction

    It seems that the S&P 500 peaked on March 1, 2017. More →

  • 11 Apr
    The FED Is Feeding Journalists Stability While Also Confessing Its Cluelessness

    The FED Is Feeding Journalists Stability While Also Confessing Its Cluelessness

    • Reading the FED’s meeting minutes is necessary to grasp those trends that will shape investment returns but are not explicit or immediate.
    • The FED has started discussing running down its balance sheet if the economy stays on track.
    • However, the FED also just told us that they have no clue what will happen this year or in the next few years. Read this article and the FED’s minutes if you don’t believe it.

    Introduction

    Last week the FED released its meeting minutes. It’s always a good idea to take a look at the minutes as inside you can find interesting long term trends that aren’t yet recognized by the market but will eventually surface. More →

  • 22 Mar
    Here’s What You Need To Know If You’re Counting On Dividend Income

    Here’s What You Need To Know If You’re Counting On Dividend Income

    • I’ll analyze the dividend environment by describing the risk reward scenario for dividend income investors.
    • The ‘monthly dividend company’ will still remain so, but you’ll be able to buy it at a 30% off, or even cheaper.
    • Whatever you’re doing, just don’t chase yields as that is the fastest way to lose a lot of money in this market.

    Introduction

    What dividend investors don’t like is uncertainty, especially uncertainty related to their dividend income. Nevertheless, uncertainty is exactly the feeling many investors have in this environment, not because of the market as the indexes are constantly breaking records, but because there is a certain feeling in the air that things might soon change and nobody knows how the financial world will look afterward. More →

  • 20 Mar
    Is This The Beginning Of The End For The Era Of Financial Engineering?

    Is This The Beginning Of The End For The Era Of Financial Engineering?

    • Most developed world economies can’t continue to grow without financial engineering.
    • However, inflation forced tightening will eventually have a significant impact on credit.
    • This will only lead to more accommodation and toward an eventual crash, so be prepared.

    Introduction

    Each significant historical bear market has an initial trigger. Weak home and car sales killed the 2003 – 2007 bull market, while the realization that stock valuations had gone too far initiated the bear market in March 2000.

    But what will trigger the next bear market? Well, there’s a great possibility that it will be monetary tightening. Perhaps it won’t be the latest quarter percentage point rate increase, but it will probably be one of the next rate hikes. More →

  • 08 Mar
    Inflation Has Arrived – Here’s What That Could Mean For Markets

    Inflation Has Arrived – Here’s What That Could Mean For Markets

    • After 7 years of enjoying interest rates close to zero, the party is over.
    • There are several scenarios that can develop, but the long-term outcome is clear.
    • In the short term, higher interest rates should increase demand for the dollar and U.S. assets, so we could see a higher S&P 500 in combination with higher interest rates.

    Introduction

    For the past year I have been writing about how things are bound to change when inflation finally arrives. Well, inflation has arrived and it’s quickly going higher which means that we’ll have to start talking in nominal and real returns, the FED will be forced to take action no matter the economic environment, and it will have significant repercussions on the economy and markets.

    Usually when I’ve written about inflation, it was about something that will happen somewhere in the future. Now that inflation is finally here, I’ll discuss what will happen in the short term. More →

  • 06 Feb
    Sven Sees Recession On The Horizon

    Sven Sees Recession On The Horizon

    • An analysis of employment, interest rates, currency, and inflation suggests a recession is inevitable in the next few years.
    • The FED can’t change economic laws nor protect us from ourselves. On the contrary, the FED will lead us into a recession in order to prevent a future depression.

    Introduction

    The FED didn’t raise rates last Wednesday but they are still on track to raise rates two to three times in 2017. The FED’s goal is to “foster maximum employment and price stability” through economic activity expanding at a moderate pace and inflation rising to, and stabilizing at 2%.

    What we know is that inflation has been slowly rising and will reach 2% relatively soon. The labor market is strong and yields have been increasing in the expectation of higher interest rates.

    A concept that always eludes economists, consequently also members of the FED, is stability. By looking at a model, an economist is trained to think that the economy can be controlled. But history shows that a stable scenario is never the case. In today’s article, I’ll forecast what lies ahead of us by looking at how the last two economic cycles developed. More →

  • 10 Jan
    Don’t Be Fooled By Projections

    Don’t Be Fooled By Projections

    • Forecasts are extremely positive, but know that a bear market or a recession are never in the picture.
    • Of all the S&P 500 ratings, 49% are Buy ratings, 45% are Hold ratings, and 6% are Sell ratings.
    • Be sure to understand the risks of what you’re doing and know history. It may not repeat itself but it rhymes.

    Introduction

    Market bulls base their positivity on strong earnings and economic growth in 2017. However, analysts are usually very optimistic about future developments. But as the forecasted events come closer, most of them cut their estimations.

    Similarly to what analysts do, policy makers are also usually very positive about future economic developments. We could say that positivity is in their job descriptions. More →

  • 20 Dec
    Be Overweight In These Sectors In 2017

    Be Overweight In These Sectors In 2017

    • Increasing interest rates make earnings growth unlikely and increase the probability for a decline of the S&P 500.
    • To beat the S&P 500, you have to invest in sectors that offer a better risk reward ratio than the S&P 500.

    Don’t Go For 10 To 20 Percent Returns In 2017

    With the S&P 500 yielding 3.85% going into 2017, stocks in general are currently an investment vehicle that gives you a small and limited upside with a potentially large downside.

    We know that the FED plans to raise interest rates another three times in 2017. If that happens, the investments people consider most secure—like treasuries, dividend paying blue-chips or REITs—will be hit the hardest because as required yields go up, their asset prices will go down. Therefore, the best way to prepare for 2017 is to position yourself so that if the FED raises rates, your upside is far bigger than 3.85% and your downside far smaller than the potential downside of the currently overvalued stock market. More →

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