Today’s edition of SV Insight focuses on the increasing heat Fed Chairman Ben Bernanke has been taking in recent weeks.
A chorus of big-name investors has taken to the media to vilify the “loose money” policies of Federal Reserve Chairman, Ben Bernake. These investors insist that Bernanke is ruining the country, debasing the currency, creating class warfare and creating a situation which is going to lead to runaway inflation. He is also supposedly responsible for creating a “fake” stock-market rally.
The S&P 500 has just set a new all-time high, which means that it just passed where it was in March of 2000. Wow! That is sobering. The good news is…the companies in the S&P are earning more than twice what they were earning back in March of 2000, balance sheets are stronger, interest rates are lower and credit is tighter. So, there are lots of differences between now and 2000 or 2007-2008 for that matter. Nevertheless, anytime you hit new highs, investors begin to ask; “is this a bubble”?
Posted in Uncategorized | Posted on 03-05-2013
The first quarter started off with a bang as we saw the S&P 500 climb 10%, nearly matching the first quarter rise of 12% that we witnessed just last year. Foreign markets didn’t fare nearly as well. The MSCI Emerging Market Index was down 5.6% in the first quarter and Europe was down 3.61%. This is also reminiscent of the first quarter of 2012 when foreign markets significantly underperformed in the first half of the year, but ended up outperforming in the second half.
It seems like the financial news is all about the budget cuts (i.e. sequestration) which are scheduled to go into effect on March 1st. Many feel that the fears and warnings about these cuts are overblown. Cutting spending is never easy but the sequester represents a fairly modest amount of cuts (less than 3% of the federal budget). It seems that the structure of these cuts (across the board as opposed to targeted) is causing maximum political disgust for a small amount of budget savings.
Jeremy is out for the Jewish holiday today so I (Robert Luna) will try my best to fill his shoes. Happy holiday to those of you whom are celebrating with your families. On Friday the fed introduced QE3. This caught many by surprise who thought the Fed may stay on hold to avoid making any large moves this close to an election. The Fed in, its latest move to stimulate the economy and decrease unemployment, is targeting mortgage rates and the housing market this time around with open ended purchases of $40 billion monthly of mortgage debt.
Posted in Uncategorized | Posted on 21-09-2012
The big events of the past two weeks have been the Republican and Democratic National Conventions. Over the next two months the country will be bombarded with political ads. Numerous studies confirm that political advertising has become increasingly negative. The negative ads will primarily focus on the economy and this will not help investor confidence. This could provide a short term headwind for the stock market. In fact, the DOW Jones Index has declined an average of 3.72 percent over the past 5 elections in the 3 months preceding Election Day.
Posted in Uncategorized | Posted on 10-09-2012
Last week we heard that Federal Reserve Chairman, Ben Bernanke is seriously considering the possibility of a new bond-buying program–QE3—which would keep interest rates at current low levels even longer than previously anticipated. These low interest rates have been have been moderately beneficial in stimulating the economy by reducing interest costs on everything from mortgages to credit card debt to the cost of new business equipment. However they have wreaked havoc on the investment plans and interest income for many conservative investors.
Posted in Uncategorized | Posted on 27-08-2012
One of the more interesting stories unfolding over the past few weeks is the global drought, which is causing crops to fail and grain prices to surge. The last 12 months have been the hottest in the US since we started keeping records in 1895. 53 percent of the country is experiencing drought conditions and the Department of Agriculture has already cut its corn crop forecast by 12 percent. Similar conditions exist in other
agricultural exporting countries.
Posted in Uncategorized | Posted on 24-07-2012
Friday seemed like a big day in the euro zone debt drama which has captivated global financial markets. 17 euro zone countries plus 9 other European countries for a total of 26, agreed to greater centralization of their budgets and automatic punishment for countries that do not comply. They also agreed to increase the size of the bailout fund by $270 billion. Naturally the details still need to be worked out and then ratified by each country’s parliament. It will take several months before the accord could go into effect.
Posted in Uncategorized | Posted on 12-12-2011
An important economic and investment theme is the boom in middle class consumers worldwide. Over the next decade, 450 million people are expected to join the middle class in China and India alone. China recently crossed $6,000 in per capita income. This is a key level where you typically see explosive growth in demand for consumer goods. Just as one small example, in 2009 China surpassed the U.S. as the world’s largest market for new cars. The interesting part is that 70 percent of those purchases were made by first time buyers.
Naturally, we can (and do) invest in these emerging markets. However, we also invest in U.S. companies that are well positioned to take advantage of these growth opportunities. Consider the (percentage) of sales that come from outside the U.S. for each of these companies: Apple (56), Texas Instruments (89), Amazon (52), Exxon Mobil (74), IBM (65), Proctor & Gamble (61), General Electric (53). In fact, the average for the 30 companies in the Dow Jones Industrial Average is 46.1 percent, compared to only 35.3 percent as recently as 1998. So the moral of the story is; there are still plenty of places and ways to make money despite a slow growing U.S. economy.
Posted in Uncategorized | Posted on 11-07-2011