Economics

Why Are Bond Yields Falling as Stocks Rally?

"One of the most striking features of 2014 has been falling Treasury yields in the wake of the Fed’s tapering of QE. The standard theory goes that, as the Fed withdraws support for longer-dated bonds, bond prices will drop (as demand falls) and yields (which move inversely to prices) will rise. So much for standard theory… In addition to the divergence between large caps and small caps (which we wrote about here and here), the divergence between falling bond yields and rising large-cap stock prices is another sign that the rally in the S&P 500 and the Dow may not be as strong as some believe." Continue reading →

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Hidden Erosion of Corporate Worth Since U.S. Abandoned Money

"For 173 years, the United States used money as a medium of exchange. In 1965, it switched to using a floating accounting unit. This change coincided with a dramatic yet hidden reversal in the net trend of worth for U.S. corporations. The shift to fake money in 1965 just happens to coincide with the year that divides the long term trend of corporate worth in the United States from mostly up to mostly down. This chart reveals the breathtaking rise in total U.S. corporate worth during the money period and exposes the stunning net destruction of U.S. corporate worth since the start of the non-money period." Continue reading →

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Doug French: The Market Is Rigged

"In the end, the controversy surrounding high-frequency trading is likely much ado about nothing. For one thing, the industry peaked five years ago, pulling in $5 billion in profits. In 2012, it pulled in $1 billion. That might sound like a lot, but JPMorgan Chase made $5 billion just last quarter. As far as influencing markets and costing the average person money, HFT doesn’t compare to the Fed’s quantitative easing and zero interest rate policy. A more sound currency, whether metallic or digital, would spread a healthier culture: one not so obsessed with speculation, wealth, material goods, and nanoseconds." Continue reading →

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Bill Bonner: What You NEED to Know about Wealth Inequality

"After the 1970s, real capital played a smaller and smaller role. It was replaced by credit and its sinister twin: debt. The r in Piketty’s now famous annotation r > g is supposed to represent the return on capital investment. But where did the wad come from? Savings rates went down. Real earnings went down. Growth rates went down. So how could there be more capital available and how could it produce higher rates of return (compared to economic growth)? The whole thing is a headache for a thoughtful man. Capital investments with no real capital behind them. Profits that outstrip the economic growth from which they must come. What to make of it?" Continue reading →

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Fed Tapers Another $10 Billion, Expecting Rebound From Grim Q1

"The U.S. economy stalled out in Q1, as GDP rose at a 0.1% annual rate, the Commerce Department said Wednesday. But with other data showing rebounding growth in the spring, the Federal Reserve voted to taper its bond-buys by another $10 billion. The Fed's decision, widely expected, cited ongoing improvement in the economy. But as previously signaled, the central bank left interest rates untouched and pledged to keep policy easy as long as the economy remained shaky. Residential investment fell hard for a second straight quarter, and business fixed investment declined at a 5.5% rate. Both sectors were expected to help lead the economy in 2014." Continue reading →

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Five+ Years of Fed Futility Laid Bare for All to See

"It has been five-and-a-half years since Lehman Brothers, AIG, Fannie Mae, Freddie Mac, and other casualties of the credit crisis imploded! We’ve been subjected to more than a half-decade of the Fed’s supposedly useful and appropriate medicine … Unlimited money printing. Zero percent interest rates. Gargantuan bank bailouts. Deliberate attempts to inflate stock and house prices. And for what? More than $3 TRILLION in extra padding on the Fed balance sheet doesn’t look like it’s done much for the broad economy. GDP grew just 0.1 percent in the first quarter. Even that dismal reading was propped up by a massive surge of $43.3 billion in health care spending tied to the Obamacare rollout." Continue reading →

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“Everything we are told about deflation is a lie”

"Messrs Yellen, Draghi et al should be careful what they wish for. Inflation targeting is hardly a precise science. Achieving an entirely arbitrary 2% inflation level is bad enough for savers on fixed incomes when deposit rates are close enough to zero as to make no difference, but markets have a tendency to overshoot. Most government bond markets are clearly overbought – but in a QE world given fresh impetus by the looming arrival of the ECB, overbought markets can become even more overbought. When we don’t claim to understand the underlying dynamics (political) or the final destination (though we have our own fears), it’s much better simply not to play." Continue reading →

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The richest man in Asia is selling everything in China

"Here’s a guy you want to bet on– Li Ka-Shing. Li is reportedly the richest person in Asia with a net worth well in excess of $30 billion, much of which he made being a shrewd property investor. Li Ka-Shing was investing in mainland China back in the early 90s, way back before it became the trendy thing to do. Now, Li wants out of China. All of it. Since August of last year, he’s dumped billions of dollars worth of his Chinese holdings. The latest is the $928 million sale of the Pacific Place shopping center in Beijing– this deal was inked just days ago. So what does he see that nobody else seems to be paying much attention to? Simple. China’s credit crunch." Continue reading →

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