Monday , October 14 2019
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Tag Archives: Valuations

Why Fed’s Monetary Policy Is Still Very Accommodative

Here are two statements from the Federal Reserve’s Federal Open Market Committee (FOMC) immediately following their interest rate decisions of August 1, 2018 and September 26, 2018. August 1, 2018 – In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1.75-2.00%. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2...

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Technically Speaking: Markets Cling To Support

In this past weekend’s newsletter, I discussed the fact the markets had finally awoken to the reality that rates have once again broken above 3%. “Speaking of rates, each time rates have climbed towards 3%, the market has stumbled.” However, I also noted that on a very short-term basis, the market was oversold enough to generate a bounce. Importantly, with market testing the January breakout highs this is a “make or break” point for the markets. There are two things currently that are worth...

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All Markets Are Cyclical – When Will This One End?

I always enjoy reading John Stepek’s work at MoneyWeek. Just recently he addressed the question of where are we in the current market cycle. To wit: “In his latest memo to clients, [Howard Marks] outlines his basic philosophy and how it affects Oaktree’s investment process at the moment. Marks’ basic point – which appears pretty self-evident, though you’d be surprised by how many people try to deny it – is that markets move in cycles. The tricky part is trying to work out when the cycle is...

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Weekend Reading: Are Dividends Telling Us Something?

Earlier this week, Eddy Elfenbein has an interesting post discussing the “Bull Market In Dividends.”  “For the third quarter, dividends from the S&P 500 grew by 10.96%. That’s the strongest growth rate in more than three years. It’s the 34th quarter in a row of dividend growth. Over the last eight years, dividends are up 234%, which is pretty close to what the S&P 500 price index has done. Considering how simple it is, the S&P 500 has tracked a 2% dividend yield fairly closely...

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Debts & Deficits: A Slow Motion Train Wreck

Last Friday, I discussed that without much fanfare or public discussion, Congress decided to push the U.S. into deeper fiscal irresponsibility with the passage of another Continuing Resolution (CR). To wit: “The House on Wednesday passed an $854 billion spending bill to avert an October shutdown, funding large swaths of the government while pushing the funding deadline for others until Dec. 7. The bill passed by 361-61, a week after the Senate passed an identical measure by a vote of...

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Sailing Versus Rowing : Active Versus Passive

Investor preferences shift between active and passive investing in a cyclical manner. Periods where the market has a strong tailwind of momentum behind it tend to attract a greater demand for passive strategies especially when that momentum carries on for a prolonged period of time. Alternatively, periods of market turbulence tend to swing sentiment back to active investing as a means of avoiding the risk of large losses. In the most recent bullish cycle the combination of market direction...

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Technically Speaking: Irrational Exuberance?

On December 5th, 1996, during a televised speech then Fed Chairman Alan Greenspan stated: “Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and...

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The Risk Of An ETF Driven Liquidity Crash

Last week, James Rickards posted an interesting article discussing the risk to the financial markets from the rise in passive indexing. To wit: “Free riding is one of the oldest problems in economics and in society in general. Simply put, free riding describes a situation where one party takes the benefits of an economic condition without contributing anything to sustain that condition. This is the problem of ‘active’ versus ‘passive’ investors. The active investor contributes to markets...

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Bubbles and Zombies

They say nobody rings a bell at the top of the market. But whether this is the top or not, two prominent market observers and historians, Robert Shiller and Edward Chancellor, are expressing concern. First, Shiller warns readers not to take big increases in earnings too seriously because earnings are volatile. Everyone knows that stock prices have risen dramatically since 2009. A $100 investment in the S&P 500 in 2009 has grown to nearly $400 at the end of August 2018. But Shiller...

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Weekend Reading: Fiscal Irresponsibility

Without much fanfare or public discussion, Congress has decided to push the U.S. into deeper fiscal responsibility. Earlier this week, the House passed another Continuing Resolution (CR) to keep the government from “shutting down” prior to the mid-term elections. “The House on Wednesday passed an $854 billion spending bill to avert an October shutdown, funding large swaths of the government while pushing the funding deadline for others until Dec. 7. The bill passed by 361-61, a week after...

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