Inflation

  • 16 Aug
    Why You Need To Prepare For All Hell To Break Loose

    Why You Need To Prepare For All Hell To Break Loose

    • The last stock bull market was influenced by central bank activity, that’s clear. What’s next is the question.
    • I’ll describe three potential scenarios that could impact our financial system.
    • One is good, the second is interesting, while the third is ugly.

    Introduction

    The general expectation is that the FED will start selling securities in order to tighten monetary policy, that the ECB will slowly stop buying, and that nothing will change in Japan. Nevertheless, such a situation would lead to an environment where the additional liquidity created by central banks finally dries up. As the liquidity provided by central banks is the main reason behind this bull market, should investors begin to cut their positions?

    In order to elaborate on this question, we’ll first analyze the situation, the expected situation, and then possible scenarios in order to give you the best answer on how to prepare yourself for what might happen. It’s extremely important to do so and, as you will see, it isn’t that difficult. More →

  • 08 Aug
    Are Stocks & Bonds In A Bubble? Sven Thinks So…

    Are Stocks & Bonds In A Bubble? Sven Thinks So…

    • Earnings have been growing in the last 12 months, but haven’t grown that much over the last 20 years.
    • Even the Swiss central bank owns almost $3 billion worth of Apple’s stock.
    • After the dot-com and the housing bubbles, school books will talk about the central bank bubble in the future.

    Introduction

    All we see right now is the stock market continuing to go up. The S&P 500 is already up 9.7% year to date, and there is no sign that the trend might weaken or reverse. Over the last 8 and a half years, the index is up 242%. More →

  • 17 Jul
    How The Economic Machine Works & Why You Need To Prepare Your Portfolio For It

    How The Economic Machine Works & Why You Need To Prepare Your Portfolio For It

    • Productivity growth is the long-term key, make sure your portfolio follows it.
    • The global distribution of wealth is shifting very quickly.
    • Preparing your portfolio for what’s going to happen doesn’t even cost that much. On the contrary, it is even more profitable.

    Introduction

    Ray Dalio is famous for many things. One of them is his explanation of how the economic machine works where he describes how productivity growth, the long-term debt cycle, and the short-term debt cycle affect an economy.

    Today, I’ll briefly summarize his findings as they are reported in a 300-page document and, most importantly, see how Dalio’s economic philosophy can affect our investing strategies. More →

  • 10 Jul
    The FED & ECB Meeting Minutes Explained

    The FED & ECB Meeting Minutes Explained

    • Financial markets are very dependent on Central Bank activity.
    • The FED is slowly tightening, but the activity is more a façade than actual tightening. Europe is still easing.
    • The fact is that things will eventually change. When? Nobody knows. The only thing a savvy investor can do is protect themselves and take advantage of everything.

    Introduction

    Many don’t see that the current market is highly influenced by Central Banks.

    In the past 8 years, Central Banks have been continually putting money into the system. The FED has recently stopped doing so, but the ECB is still buying bonds, even corporate bonds, while the Bank of Japan has bought almost everything they can buy. So, it’s clear that high current asset prices are a direct result of Central Bank actions as the fundamentals haven’t really improved as much as asset prices have increased.

    The long-term picture is relatively easy to understand, but I must say, I was surprised by the short-term correlations between Central Bank activity and stock prices. More →

  • 04 Jul
    Why Yesterday’s Retirement Investing Advice Won’t Work In Today’s Environment

    Why Yesterday’s Retirement Investing Advice Won’t Work In Today’s Environment

    • Common retirement investing advice worked ok in the past, but could have been much better.
    • Why would you sell stocks that you bought a long time ago, and that are still growing and paying dividend, to buy bonds that yield less than inflation?
    • Over the long term, little differences amount to a huge difference. Take responsibility for your retirement.

    Introduction

    The common advice on retirement investing is to be overweight stocks when you are far from retirement and then overweight bonds when you are closer to retirement. Some funds offer target date retirement funds that have such a portfolio allocation.

    Vanguard’s target retirement funds invest up to 90% in stocks when you are more than 25 years from retirement, and then lower that exposure to about 50% when you retire. 7 years into retirement, you have 70% of your portfolio in bonds. More →

  • 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 →

  • 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 →

  • 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 →

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