FED

  • 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 →

  • 19 Dec
    The FED Getting It Right Would Be Scary For Stocks

    The FED Getting It Right Would Be Scary For Stocks

    • A negative scenario implies economic growth and inflation not reaching the FED’s estimations, which wouldn’t be such a bad thing for stocks in 2017.
    • A positive scenario implies the FED’s estimations to be met, a potentially dangerous situation for stocks.
    • A federal funds rate of 2.1% by the end of 2018 would see the S&P 500 at 1,629 points, all other things being equal.

    Finally, The FED Had The Courage To Increase Rates

    After more than a year of waiting, the FED finally decided to increase interest rates.

    You probably know that this is because unemployment has reached natural levels and inflation is rapidly moving towards targeted levels. On top of that, the FED forecasts to raise interest rates by another 0.75 percentage points in 2017.

    Today we’ll discuss the potential repercussions this rise in rates could have on the economy and our portfolios. More →

  • 04 Dec
    Sunday Edition: A Debt Bomb Sure To Implode

    Sunday Edition: A Debt Bomb Sure To Implode

    The recent spike in interest rates over the last few months is a hot topic among financial news and media outlets. And it should be – it’s alarming.

    The rate on the 30-Year U.S. Treasury Bond shot up from 2.10% in early July to over 3% where it now sits. Many, including myself, are now calling for the end of the 35+ year bond bull market.

    I believe when we look back in 20 years, the 177’11 July high in bonds will mark the beginning of a new long-term bear market in bonds. More →

  • 28 Nov
    The FED Being Hesitant Isn’t Good News…

    The FED Being Hesitant Isn’t Good News…

    • The FED is telling us stressful times are on their way, why not position yourself in a win-win situation?
    • We’ll summarize the good, neutral, and bad news.
    • The reason why the FED is hesitant in raising rates is of global concern.

    Introduction

    In our article on Friday, we discussed how important interest rates are for the stock market as higher interest rates pull stocks down while lower interest rates push stocks higher because people have lower required return rates. More →

  • 22 Nov
    Things Are Finally Changing – Are You Ready To Seize The Opportunities?

    Things Are Finally Changing – Are You Ready To Seize The Opportunities?

    • Economic growth has been fueled by credit in the last 30 years with increasingly lower interest rates.
    • A reversal is inevitable and will lower consumption and investments as credit tightens.
    • A 100-basis point increase in corporate debt costs would lower S&P 500 pretax earnings by 6.3%.

    Introduction

    In her latest speech, FED Chair Janet Yellen clearly stated that she expects global economic growth to firm up, supported by accommodative monetary policies abroad, U.S. inflation to reach the targeted 2% level, and the FED to raise interest rates relatively soon.

    After seven years of low interest rates and low inflation, the impact of the above mentioned changes has to be assessed very carefully as there is no recent historical precedent. More →

  • 09 Nov
    The Economics Are Great, But Valuations Point Toward Stock Picking To Limit Risk

    The Economics Are Great, But Valuations Point Toward Stock Picking To Limit Risk

    • GDP, productivity and earnings are growing which is great news.
    • However, valuations are high and interest rates are likely to rise soon.
    • Given the variations in revenue and earnings growth, and the upcoming changes in interest rates, now may be the time to switch from index investing to stock picking.

    Introduction

    As the earnings season is almost over—and GDP, productivity and labor data is in—it’s a good time to look at what kind of conclusions can be made out of the multitude of information. By putting the noise aside (the election) and focusing on news that impacts future earnings, we’ll relate recent developments to the potential risks and rewards for your portfolio. More →

  • 01 Nov
    GDP Is Up But Stocks Are Down – How You Should Respond

    GDP Is Up But Stocks Are Down – How You Should Respond

    • Inflation is approaching 2% as the current dollar GDP has increased to 4.4%.
    • Both inflation and GDP growth will force the FED to take action – the selloff in yielding assets will continue.
    • Nondurables consumption leads to GDP growth alongside exports and inventories buildups questioning GDP growth sustainability.

    Introduction

    Last Friday, the Bureau of Economic Analysis released the GDP data for Q3 2016. At first, it looked surprisingly good with the GDP growing at an annual rate of 2.9% for the quarter. This is excellent news as it takes the economy out of its anemic growth rhythm seen in the last two years. More →

  • 20 Oct
    The Economy Is Stuck – What Does It Mean For Your Investments?

    The Economy Is Stuck – What Does It Mean For Your Investments?

    • According to the FED Vice Chairman, economic prospects are dim.
    • As the S&P 500 is at all-time highs, you’re probably overweight in an aging, slow growing, low investment economy.
    • Use the amazing returns of the past 7 years to diversify as the FED will not be able to save the economy from a bad recession like it has in the last 50 years.

    Introduction

    In a speech at the Economic Club of New York, FED Vice Chairman Stanley Fischer discussed the causes and implications of sustained low interest rates. In today’s article, we’ll analyze his perspective and extrapolate on the implications of such an economic environment on long term investment returns. More →

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