Investments

Doing Nothing is Doing Something

ICangles Investment Post…

In my August post I recommended investors do nothing in terms of stocks. In my view as we end the year, stocks still represent a good value in terms of dividend yields versus bonds, and an investment portfolio should hold a healthy portion of stocks. The S&P 500 index of large cap U.S. stocks is yielding more than ten year Treasuries. So despite the volatility I didn’t argue for selling, but neither did I argue for aggressively adding to stock positions given legitimate concerns about European debt issues. I found it worrisome that the earlier stock rally had broken down, and plausible that a volatile stock market could move any direction—higher, lower or sideways. And for the year it basically did move sideways. But the value and lack of good investment alternatives in my mind argued for doing nothing and holding onto positions.

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Market Malaise

ICangles Investment Post….

Stocks are cheap. The S&P 500 is yielding about as much in dividends as 10-year Treasury securities. Think about that for a second. An investor can get as much income by buying high quality blue chip stocks as purchasing a ten year bond. And there is good reason to believe that for long term investors stocks will post strong capital gains over the next decade (I will get more into that in a future post). But investors can be excused for not being overly enthusiastic about the immediate prospects for stocks. Then again nothing looks like a sure thing short term–even the safe havens aren’t safe. To borrow a term made famous by Jimmy Carter during the current secular bear market a malaise has fallen over today’s market for all manner of financial vehicles to store value.

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GDP, Damn Lies & Other Government Statistics

ICangles Investment Post…

With the media focused on the political circus around the debt ceiling, not much attention was paid outside of financial circles to the newest GDP data announced late in July. But it is likely of more concern than the government’s self imposed borrowing limit. The first six months of 2011 were estimated to be the weakest in terms of economic growth since the recovery began. The first quarter is now estimated to have posted annualized growth of just 0.4 percent with the second delivering an uptick of only 1.3 percent. As a result economic forecasts are being lowered for future growth.

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Beware Greeks Bearing Debts?

ICangles Investment Post…

Concerns over the debt situation in Greece spiraling out of control and roiling financial markets around the world, including banks and investment companies with exposure to Greek debt, has been in the headlines lately. Some even worry the current situation could spark another global downturn. Among their number is Alan Greenspan who stated a default by Greece is a near certainty and could drive the U.S. economy into a recession. Counter-intuitively all of this concern, especially worries emanating from the fraternity of central bankers, is reason to not worry at present over the situation.

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Painted in a Corner

ICangles Investment Post…

The Federal Reserve has painted itself into a corner, where there is no easy way out. The current global monetary system is headed for trouble. Dangers around rising inflation coupled with a weak employment environment, aka stagflation, are building. America already has the weak job market, and now as my previous post pointed out there are warning signs that the Fed’s latest policy moves are translating into inflationary forces. Having already focused on some of those signs, I am going to take a moment here to describe the dynamics of the problem. Although the leaders of the Fed not surprisingly argue there is nothing to worry about, there are three compelling reasons to believe otherwise.

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Things Fall Apart

ICangles Investment Post…

It is increasingly clear that the arrangements at the center of the world’s monetary system are fraying. On Monday Standard & Poor’s cut its outlook on the credit rating of the United States to negative indicating there is a very real possibility for a downgrade. By Tuesday gold prices topped $1,500 an ounce. Also last Friday China admitted inflation was picking-up steam, as it announced an official annual uptick of 5.4 percent that almost surely understates the true amount. On the European front Moody’s downgraded Ireland’s credit rating last Friday. That action followed earlier comments from Germany’s finance minister that Greece may default on its debts. All of this came despite the world being in the midst of an economic recovery.

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Forecasting the Reckoning

ICangles Investment Post…

There has been a lot of worrying in financial markets over the past few months. In fact quite a long list of looming disasters has been assembled. Will destabilization in the Middle East, especially if unrest reaches Saudi Arabia, send oil prices skyrocketing and the global economy spiraling? Could this wave of unrest spread to China? Will the earthquake in Japan trigger a financial crisis in that country, as more debt is added to an already formidable mountain of debt? Is Bill Gross signaling a debt crisis in the U.S. is eminent, as he pilots the world’s largest bond fund out of U.S. Treasuries? Irrespective of the U.S. Treasury market is a wave of defaults on its way in the municipal bond market? And what about real estate—are we now on our way to a second bottom with prices headed for a 20 percent or greater decline?

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Don’t Fight the Fed

ICangles Investment Post…

Prospects are excellent for a positive year in the stock market in 2011. Odds are good also for that strength to carry over into 2012, although it’s a bit early to prognosticate on next year. This bull market is still relatively young and should have further to run.  Although I am no fan of the accommodative monetary policy of the Federal Reserve believing it led to the housing bubble and is fueling rises in commodity prices today, I am also quick to admit that in the near term it is a positive for the stock market.  “Don’t Fight the Fed” is a popular saying among investors for good reason. The economy is growing, stock prices are rising and these trends will likely continue for a time.

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More Money Problems

ICangles Investment Post…

For the current secular bear market asset inflation trouble comes in threes. Too much liquidity in the global economy in the late 90’s fueled the Internet bubble of bad corporate investments that popped in 2000. To avoid the necessary restructuring pain around a recession, more liquidity was injected into the global economy leading to unsustainable growth around the residential real estate bubble that popped along with related credit markets in 2007. In another attempt to avoid restructuring pain and alleviate the following recession more liquidity is being injected into the global economy notably by the U.S. and Chinese governments. Today that capital is fueling more unsustainable price appreciation or levels in bonds, emerging markets and commodities.

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