Introduction
In this article, I’m going to explain what the yield curve is, what a flattening or steepening yield curve means, how the yield curve impacts the economy, and see whether the current yield curve indicates that we are close to a recession in 2018. More →
Yesterday, we discussed what’s going on with stocks. One of the explanations is that the market is pricing in the end of the economic cycle. If that’s true, there is a lot more downside for stocks.
Let’s see what the latest economic news is, how that fits the economic cycle, what the probability for a recession is, and what we should expect from stocks.
Economic News
The economic news is relatively good. Jobless claims have reached the lowest level in history. More →
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 →
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 →
Introduction
What do you do when your neighbor, that you know makes the same amount of money as you do, buys a Porsche, puts a big pool in their garden, remodels and refurnishes their house, and throws big parties to brag about it? More →
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 →
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 →
Introduction
PricewaterhouseCoopers (PwC) just released its report on what the economic world will look like in 2050. You might wonder what that has do to with your investment returns as 2050 is 33 years from now, but it has everything to do with your returns if your investment horizon is longer than a few years because these global trends that will shape the world up to 2050 will also be the trends that will shape your portfolio returns. More →
Introduction
Nature works in cycles, there is winter, summer, drought, rain, monsoons, a year with mosquitos, one without, El Niño, La Niña, a good crop, bad crop, etc. As we are part of nature, cyclicality is inherent to our behavior and our behavior is reflected in the economy as we are the economy.
It’s important to continually analyze and mark where we are in the economic cycle in order to have a better perspective on how to position ourselves as investors. Most analysts and financial professionals look in the rear-view mirror to predict the future and then focus on only one year. This is because it doesn’t pay to look beyond a year as it would force them to tell the truth and consequently lower their selling commissions because not many would invest if they knew that there was a risk of losing 50% of their investment in the next few years. More →