Interest Rates

  • 16 May
    When CEOs Become Delusional: The Case of Unilever’s Polman

    When CEOs Become Delusional: The Case of Unilever’s Polman

    • Unilever CEO Polman declared himself more competent than Buffet just because Unilever has outperformed Berkshire in the last 8 years. The funny thing is, Unilever outperformed thanks to Buffett.
    • Not only that, but Berkshire outperformed Unilever on revenue and earnings while at equal valuations, Berkshire would also largely outperform.
    • The 8-year bull market has clearly gotten into some CEOs’ heads. This creates a very dangerous situation for long term shareholder value creation.

    Introduction

    In an interview with Jim Cramer, I was thunderstruck to hear Unilever’s CEO (NYSE: UL), Paul Polman, tell the world that his returns have been better in the last 8 years than Buffett’s Berkshire Hathaway (NYSE: BRK.A, BRK.B). More →

  • 10 May
    The Trouble The Market Refuses To See

    The Trouble The Market Refuses To See

    • GDP growth is at three year lows, car sales have dropped 11%, and the biggest sector contributing to new employment is about to go into oversupply.
    • The FED is in a stalemate situation. It should raise interest rates and deleverage, but it’s already too late as the economy, government, and population is hooked on low interest rates.

    Introduction

    The market’s behavior reminds me of the three wise monkeys. One doesn’t see, the other doesn’t speak, and the third doesn’t hear. The VIX index, a measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices, indicates that investors expect stability and didn’t even react to the bad news coming from the automotive industry, jobs, and a very important bankruptcy. 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 →

  • 29 Mar
    Are High Dividend Yields Worth It?

    Are High Dividend Yields Worth It?

    • High dividend yielders are worth it if you know what you’re doing, i.e. you know the sector in detail and understand the macro environment. However in most cases, high yielders are traps with a high risk of permanent capital loss.
    • Less risk can be obtained by investing in dividend aristocrats. Most are fairly priced or overpriced, but some still pay nice dividends. The complete list is provided.
    • As always, I would look abroad for yield. The dollar is currently strong which makes such investments cheap. A currency reversal will give you higher yields in the future.

    Introduction

    Dividend investors have really enjoyed the last three decades as interest rates have been declining. Lower interest rates make stocks that pay stable dividends more attractive while also enabling management to use more leverage to increase those dividends.

    You can read more about what to expect from the dividend world here. However, low interest rates also push the price of stable dividend yielders into the sky making new investments less attractive. More →

  • 28 Mar
    Triggering The Next Recession – The Automotive Industry

    Triggering The Next Recession – The Automotive Industry

    • The automotive industry makes up 2.5% of GDP, but its discretionary nature is what makes it important.
    • Car loan delinquencies are rising, sales are starting to get stretched from a credit perspective, and higher interest rates won’t help.
    • There is no risk of a financial crisis arising from the automotive industry, but it’s very likely that the industry will lead the economy into a healthy recession.

    Introduction

    In a recent article, I elaborated on the difference between having a static or a dynamic view of the markets and how not thinking ahead can be very dangerous. I used the total amount of car loans outstanding to point out how things have changed in the past, i.e. car sales increased due to low interest rates, and how things will change in the future, i.e. interest rates will increase and lower car sales. More →

  • 23 Mar
    Do You Have A Static Or Dynamic View Of The Markets?

    Do You Have A Static Or Dynamic View Of The Markets?

    • A static view tells us stocks are cheap. A dynamic view tells us hell is about to break loose.
    • Vehicle loans have increased 57% since 2010. If interest rates increase, car sales and other credit related sales will falter and lead the economy into a recession.
    • However, as always, there are ways to make money in any environment. Today we’ll discuss an actionable idea and introduce you to a profitable long term investing philosophy.

    Introduction

    This market has lost all connections to economic reality.

    The FED’s rate hike lowered treasury yields instead of pushing them higher. This is at odds with history as since 1954, the correlation between the federal funds rate and the yield on 10-year treasuries has been nearly perfectly correlated with a correlation ratio of 0.91, 1 being perfectly correlated. 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 →

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