Interest Rates

  • 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 →

  • 16 Dec
    Why You Might Want To Start Dollar Cost Averaging Precious Metals

    Why You Might Want To Start Dollar Cost Averaging Precious Metals

    • Central banks’ balance sheets have quadrupled in the last decade.
    • Balance sheets will continue to balloon as there isn’t another option for economic growth in developed countries.
    • You should start to think about protecting yourself from inflationary pressures now, when such fears seem distant and unlikely. It’s the cheapest time to do it.

    Introduction

    Yesterday we discussed the three drivers that could push markets higher if all other factors like interest rates, risk perceptions, and global political issues stay as they are now. However, we didn’t discuss what happens if the underlying pillars that have been holding up global financial markets since the Great Recession change. Today we’ll discuss what could change and how to properly diversify. 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 →

  • 25 Nov
    Want To Know What Your Returns Will Look Like In 17 Years? Buffett Has Some Insights

    Want To Know What Your Returns Will Look Like In 17 Years? Buffett Has Some Insights

    • We’ll discuss the primary reasons behind long term returns on investments.
    • With interest rates being close to zero, we have to exclude lower interest rates benefiting future returns.
    • General market conditions create a negative asymmetric risk reward situation, but there is a better option.

    Introduction 

    With the Dow passing 19,000 and the S&P 500 passing 2,200 points, it’s time to take a look at the markets, investors’ expectations, and the real possibilities that those expectations will be met. 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 →

  • 16 Nov
    The Metal Conundrum After Trump’s Victory

    The Metal Conundrum After Trump’s Victory

    • The current copper spike may not last, but it shows copper’s long-term potential, especially if part of the announced infrastructure program materializes.
    • Unlike copper, other metals aren’t in a sweet spot due to unlimited supply, and recent and large price increases.
    • Gold is the riskiest of all metals, especially now with no more election uncertainty, a stronger dollar, and the expected FED action in December that will have us seeing higher interest rates.

    Introduction

    In the last couple of weeks, metal prices have moved.

    Copper has made an historic surge of 21.5% in the last two weeks, while gold fell 7.5% from its peak.

    As Trump won the election, the expectation of intensified construction and increased investments in infrastructure have pushed copper prices higher while gold suffered as the world didn’t come to an end. The short term moves in metal prices aren’t that significant as they are influenced mostly by speculators, but an analysis can show us where the long-term risks and opportunities lie. More →

  • 14 Nov
    What Trucking Can Tell Us About The Economy

    What Trucking Can Tell Us About The Economy

    • Trucking data hasn’t been stellar year to date which questions the strength of Q3 economic growth.
    • No trend is clear yet, however the trucking index is an important indicator.
    • Trucking stocks aren’t tempting given the forecasted growth and inherent risks.

    Introduction 

    Trucking is an interesting sector for two reasons, one is of course as an investment, while the other is as an indication of the economic health of the nation. More demand for trucking means that there is more demand for goods which should increase GDP and consequently corporate revenues and profits. 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 →

  • 31 Oct
    REITs – Still A No Go As Risks Are Rising

    REITs – Still A No Go As Risks Are Rising

    • With yields going up, REITs have fallen 10% since the beginning of August.
    • With Italy issuing a 50-year bond at a 2.85% yield, we question the intelligence of the investors who bought them.
    • With REITs you are risking a 50% decline in the next few years for a 3.5% yield.

    What’s Going On With REITs?

    On August 3, 2016, we discussed Real Estate Investment Trusts (REITs) and how they weren’t a great investment at the time. You can read the article that introduces you to what REITs are and their risk and rewards here.

    Since the beginning of August, REITs have fallen by 10% (iShares U.S. real estate ETF – IYR) compared to the S&P 500 which was practically flat. More →

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