In this article, I dissect Operation Twist. I also look back at Operation Twist 2.0 circa 2011- 2012 and assess its effectiveness and how it impacted various asset classes.
Short-term interest rates are approaching zero percent and will likely be negative shortly. The culprit is an unusual circumstance at the U.S. Treasury.
Inflation has been missing in action because there has been a collapse in the velocity of money.
The Fed juices the stock market in four ways.
Of the many tales being told to justify record equity valuations, low interest rates are among the more popular. However, that is only half the story.
Government legislation designed to limit executive compensation runs afoul of economists and academia who chose to base executive compensation on “performance.”
The United States faces a $3.1 trillion annual deficit supported with interest rates at or near zero. The Fed and government are rapidly exhausting their arsenal to fight current and future recessions. Equally troubling, almost all of their actions offer little or no future benefit, but the costs stay with us.
The massive surge in passive strategies' popularity has pushed the market to the brink of instability. Instability can result in price surges to unprecedented valuations.
Investors, especially those with limited experience, are declaring that value is dead. Those who act on that belief will suffer at the hands of Mr. Market.
A strong understanding of market dynamics exposes some valuable gems. When the time comes, these stocks will make playing defense productive.
The current environment may be more uncertain and riskier than any we have seen in our lifetimes. Yet, corporate bond spreads say the future has never been more certain.
Value (investing) is dead. Long live value investing. Such certainly seems to be the mantra as investors continue to pile into growth stocks while rationalizing valuations using methodologies which historically have not worked well.
Unlike passive investors, who buy at any price, active managers police markets to drive price discovery. But the active police has been defunded.
Historically low bond yields threaten the diversification value of bonds in the traditional 60/40 allocation.
The appearance of a record-long economic expansion was fueled by expanding levels of debt and corporate share buybacks. The façade of recovery, a soaring stock market, convinced most people that it was real.
Economic devastation will not heal itself in months or quarters and disappear, even if the virus does. The implications of bankruptcy and joblessness and a host of other financial, psychological, and societal issues dictate the path going forward.
The entirety of the financial media and many on Wall Street believe a V-shaped economic recovery is in our future. While I hope they are right, it would be foolish to take such analysis and, quite frankly, unwarranted optimism, at face value.
Most investors are unable to grasp why the Fed’s QE actions have been ineffective. In this article, I explain why today is different from the past.
In this time of global crisis, thoughts of the now-canceled NCAA “March Madness” basketball tournament may be the farthest thing on our minds. But concerns for your clients’ financial futures have been heightened by the recent volatility. My article, which I wrote before the coronavirus crisis, reflects on a valuable parallel between predicting a national champion and achieving a desired investment return.
The state of monetary policy explains why so many people are falling behind and why wealth inequality is at levels last seen almost 100 years ago.
Value investing is an active management strategy that considers company fundamentals and the valuation of securities to acquire that which is undervalued. But as Graham and Dodd defined it, passive strategies are not investing; they are speculating.
If the Fed is papering over problems in the overnight funding market, we are left to question its understanding of global funding markets and the global banking system’s ability to weather a more significant disruption than the preview we observed in September.
Since the financial crisis, investors, market analysts and observers are helplessly watching the Fed, a guardian that does not realize the market is drowning. The Fed, the lifeguard of the market, is unaware of the signs of distress and unable to diagnose the problem.
Since Volcker, the Fed has been run by self-described liberals and conservatives preaching easy money. Their extraordinary policies of the last 20 years are based on creating more debt to support the debt of yesteryear. Those economic leaders show little to no regard for tomorrow and the consequences that arise from their policies.
The turmoil from the mid-September crisis in the repo funding market has not subsided. Indeed, some are calling for aggressive policy actions to prevent a recurrence. Regardless of what those policies are called, they are nothing more than thinly disguised quantitative easing.
On September 16, banks were unwilling or unable to lend on a collateralized basis in the repo market, even with the promise of large risk-free profits. This behavior pointed to the end of the market stimulus that has been around for the past decade.
Is “invest” the right word to describe an asset that when held to maturity guarantees a loss of capital?
I explore a few different ways that President Trump may try to weaken the dollar.
The Fed continues to play an outsized role in influencing asset valuations that are historically high. As such, it is incumbent upon investors to understand when the Fed may be on the precipice of making a policy error. If asset prices rest on confidence in the Fed, what will happen when said confidence erodes?
If you think the Fed may only lower rates by 50 or even 75 basis points, you are grossly underestimating them.
Two of the largest holders of U.S. Treasury debt (China and the Federal Reserve) are no longer buying as aggressively as they once did. More concerning, this is occurring as the amount of Treasury debt required to fund government spending is growing rapidly. The consequences of this drastic change in the supply and demand picture for U.S. Treasury debt are largely being ignored.
The purpose of the article is to define money and currency and discuss their differences and risks. It is with this knowledge that we can better appreciate the path that massive deficits and monetary tomfoolery are putting us on and what we can do to protect ourselves.
Before Glass-Steagall was abolished, financial institutions accounted for 20% of total corporate profits. Over the last 18 years, that amount has doubled to 40%. Banks do not innovate; their profits represent a missed opportunity for someone else to innovate.
A recession is coming. As Warren Buffett’s top lieutenant Charlie Munger points out, successful navigation comes down to trying to make as few mistakes as possible.
Regardless of the Fed’s characterization of a normal balance sheet, the normalization process is far from normal. What the Fed is doing is redefining “normal” to support inflated and over-valued asset prices and accommodate an unruly market. This will only aggravate any deeper problems lurking.
I use Gilligan’s Island as a means of illustrating productivity and its importance for the health of an economy and the prosperity of its people.
This article examines the Federal Reserve’s monetary policy objectives and their stated inflation goals to better appreciate the role they play in rising wealth and income inequality gaps.
The economy is in the late stages of an economic expansion. Just as low tides follow high tides, we can use prior cycles as a guide to consider prudent, late-stage portfolio positioning.
Can the president of the United States fire the chairman of the Fed? If so, what might be the implications?
Thomas Piketty and many other economists ignore the fact that the world runs most fairly and efficiently when individuals are free to pursue their separate interests. Said differently, free-market capitalism, although imperfect, remains the single best means of relieving people from the ubiquity of scarcity.
This article considers the juxtaposition of colliding worldviews and the unified message that voters across the political spectrum are sending. While many investors are aware of the political change afoot, very few have considered how said changes will affect the economy and financial markets.
While it may appear the post-Bretton Woods covenant was a win-win pact, there is a massive cost accruing to everyone involved. The U.S. is mired in economic stagnation due to overwhelming debt burdens and a reliance on record-low-interest rates to further spur debt-driven consumption.
In the past month, two well-known and highly respected money managers have made confident assertions about the markets. Their comments would lead one to believe that the future path of the market in the coming months is known.
The perceived economic prosperity of recent decades is largely the result of political expediency. Those in charge of monetary policy have repetitively failed to act in the best interests of the public in an effort to either avoid criticism or preserve their individual status. While often ignored, this dynamic is crucial to understand to form longer term expectations for asset prices.
I introduce an investment benchmark that simplifies the tracking process toward goals, which if achieved, provide certitude that one’s long-term objectives will be met.
As history demonstrates, conformity to the irrational can and often does persist beyond conceivable limits, yet incoherence of behavior is not sustainable indefinitely.
My previous article, The Death of the Virtuous Cycle, provided readers with a clear understanding of why the United States and many other developed economies have seen productivity, wages, and economic growth stagnate. Due to the significance of its message and my desire to effectively reach as many people as possible, I take a new approach and present the concepts using an animated short video.
Modern central bankers try to convince the world that deflation is evil. They preach that they must intervene to stoke inflation at all cost for the good of society. The truth is that deflation is a beneficial byproduct of innovation and productivity gains.
Danielle DiMartino Booth, a former Dallas Federal Reserve official, released a new book this week entitled Fed Up. The book, a first-person account of the inner-workings of the Fed, provides readers with unique insight into the operations, leadership and mentality of the world’s most powerful financial institution.
We expose the crafty game that Wall Street and corporate investor relations departments play to put a positive spin on earnings releases and give the impression that stock prices are cheap based on forward-looking earnings expectations.
