Weighing The Week Ahead: Will Opinion Replace Data? [View article]
june1234 -- The default rate on student loans has moved higher, above the level of credit cards for the first time in history. It does not seem to be quite as bad as you are suggesting.
I like to highlight a wide variety of factors that we should all be watching. We have a national policy choice. Investing in education, especially in soft economic times, usually makes sense. It is a tough question.
But let's be serious. You surely don't expect ALL of the loans to default. Here is a recent article that does a balanced treatment, I think: http://buswk.co/YmgFth
Thanks for joining in! (how did you do on the two quizzes?)
Weighing The Week Ahead: Will Opinion Replace Data? [View article]
lford - This is a question that is popping up more frequently, especially among those who score highly on one of the quizzes!
Just to let everyone else join in, lford is asking about money velocity, defined as the ratio of GDP to M2. It is the rate of turnover of money in the economy. Here is the current chart: http://bit.ly/x0cMMT
The question of the relationship to the economy is a good one. It is also too difficult for me to answer effectively in the comments. I already had this on the agenda, so perhaps I'll move it up. Meanwhile, here are a few thoughts to get started.
The key concept is the "liquidity trap" -- where people are willing to hold money with zero interest, just for safety. The current Fed solution (as of the last few months) is to increase inflation expectations to change this behavior. Here are a couple of links:
The sources are at the forefront of the debate. Most of the bloggers putting up a chart and asserting some kind of causation do not really understand the problem.
Good question, and sorry I can't (currently) do better in the answer.
Weighing The Week Ahead: Will Opinion Replace Data? [View article]
Last Boomer -- As you know, I watch earnings very closely -- both actual results and forward estimates. There has been a multi-year argument that earnings estimates are too high and MUST come down. We have seen a little of that in the forward estimates and now a slight decrease year-over-year. Brian Gilmartin thinks that Q312 was the trough.
So yes, it bears watching, but there is a lot of built-in skepticism.
The Biggest Investor Lesson From Earnings Season [View article]
Jeremy - I am mystified by your comment. Are you suggesting that any of the methods I mentioned help you "catch the next equity downdraft?" Before they can generate a sell signal, they have to find a buy signal!
My own methods use recession warnings and financial stress as warnings, which you can verify in my weekly posts. The last warning signal came in October of 2011.
Weighing The Week Ahead: Is There A Stop Sign At The Market Top? [View article]
27605 -- Each of these is a different method. The SLFSI is a concurrent measure of risk based on a lot of market indicators.
The C Score is the best method for forecasting recessions (or cycle bottoms) nearly a year in advance. The Superindex is a sophisticated method of pulling together several recession forecasting methods, doing better than each can do separately.
Put together, I am not trying to time market tops and bottoms, but I am attempting to avoid genuine risk. When there is "headline risk" unsupported by data, I cannot help. My advice to clients is to expect one or two of these events each year.
If you've been on the sidelines during the market's recent run, don't worry, there's more upside to come, says Goldman's Abbie Joseph Cohen. This rally's real, and the fundamentals are there to support it Cohen says. She pegs fair value for the S&P 500 at 1,575 — a 4% premium to yesterday's close. "There are other models, including the Fed model, that show fair value as high as 1,700 or 1,750." [View news story]
And then there is always the Seeking Alpha comment indicator. At the moment it is 23-1!
Individual Investors! Get Your Share Of Profits From The Fed [View article]
David -- Doug has done a lot of work on some interesting alternative indicators and especially on demographics. He sees the adjusted gasoline data and miles driven as a negative economic indicator. He carefully acknowledges that there are a number of other factors in the causal model, as you probably saw from his last paragraph.
At the moment, I do not have a specific conclusion, but I think it is interesting. Bonddad has also done some work on gasoline usage.
Individual Investors! Get Your Share Of Profits From The Fed [View article]
king999 -- It is an example of a cheap tech stock that will benefit from the global growth story I expect. The stocks I mentioned were just examples. There are many similar choices.
Individual Investors! Get Your Share Of Profits From The Fed [View article]
Doug -- Thanks for your kind comment. So many people are focused on what they call the bad fundamentals, that I actually feel contrarian.
I am having no trouble finding stocks that are trading at major discounts to normalized P/E. And the overall market has a huge equity risk premium. To me, this shows that most remain pretty skeptical.
I enjoy writing, and hope to do more rather than less.
Individual Investors! Get Your Share Of Profits From The Fed [View article]
David -- I always expect to do the weekly piece, even when I have a weekend-long commitment or a trip. Usually I manage to do so, but it takes about six hours.
I need to figure out some way to do an abbreviated version so that I am not completely MIA.
Individual Investors! Get Your Share Of Profits From The Fed [View article]
Rich -- If you think about what you wrote, you will see that your evidence proves my point.
There are many factors affecting bond prices. The biggest single cause if low rates is pervasive world-wide fear of everything else and a flight to quality. This is why the equity risk premium is so high.
Another factor would be expectations for future inflation.
As you point out, there was a reaction as soon as QE was announced. This was obviously not due to actual buying, since that had not yet occurred. When we try to study a complex causal model, we need to get the sequence of events in focus. That is the first step.
If you go through my suggested readings, you will find several on this theme. Most of what is attributed to the Fed comes from trader misconceptions leading to self-fulfilling prophecies. This is true of food costs, energy costs, POMO and the market, and whatever else.
And it is further complicated because we do not know for sure what would have happened in the absence of QE.
Weighing The Week Ahead: Will Opinion Replace Data? [View article]
No one is reporting a score, even though I admitted mine!
Jeff
Weighing The Week Ahead: Will Opinion Replace Data? [View article]
I like to highlight a wide variety of factors that we should all be watching. We have a national policy choice. Investing in education, especially in soft economic times, usually makes sense. It is a tough question.
But let's be serious. You surely don't expect ALL of the loans to default. Here is a recent article that does a balanced treatment, I think: http://buswk.co/YmgFth
Thanks for joining in! (how did you do on the two quizzes?)
Jeff
Weighing The Week Ahead: Will Opinion Replace Data? [View article]
Just to let everyone else join in, lford is asking about money velocity, defined as the ratio of GDP to M2. It is the rate of turnover of money in the economy. Here is the current chart: http://bit.ly/x0cMMT
The question of the relationship to the economy is a good one. It is also too difficult for me to answer effectively in the comments. I already had this on the agenda, so perhaps I'll move it up. Meanwhile, here are a few thoughts to get started.
The key concept is the "liquidity trap" -- where people are willing to hold money with zero interest, just for safety. The current Fed solution (as of the last few months) is to increase inflation expectations to change this behavior. Here are a couple of links:
http://nyti.ms/Xf8wNG
http://bit.ly/YUWToR
http://bit.ly/YUWQt5
The sources are at the forefront of the debate. Most of the bloggers putting up a chart and asserting some kind of causation do not really understand the problem.
Good question, and sorry I can't (currently) do better in the answer.
Jeff
Weighing The Week Ahead: Will Opinion Replace Data? [View article]
So yes, it bears watching, but there is a lot of built-in skepticism.
Thanks for bringing this up!
Jeff
The Biggest Investor Lesson From Earnings Season [View article]
Jeff
The Biggest Investor Lesson From Earnings Season [View article]
My own methods use recession warnings and financial stress as warnings, which you can verify in my weekly posts. The last warning signal came in October of 2011.
Jeff
Weighing The Week Ahead: Is There A Stop Sign At The Market Top? [View article]
The C Score is the best method for forecasting recessions (or cycle bottoms) nearly a year in advance. The Superindex is a sophisticated method of pulling together several recession forecasting methods, doing better than each can do separately.
Put together, I am not trying to time market tops and bottoms, but I am attempting to avoid genuine risk. When there is "headline risk" unsupported by data, I cannot help. My advice to clients is to expect one or two of these events each year.
If you have a little time, you can get a collection here: http://bit.ly/VgZw6m
Thanks for your interest, and good luck!
Jeff
Weighing The Week Ahead: Is There A Stop Sign At The Market Top? [View article]
The theme of China going after reserves and oil company interests is an important one. I want to report it, but I want to do so accurately.
Thanks,
Jeff
If you've been on the sidelines during the market's recent run, don't worry, there's more upside to come, says Goldman's Abbie Joseph Cohen. This rally's real, and the fundamentals are there to support it Cohen says. She pegs fair value for the S&P 500 at 1,575 — a 4% premium to yesterday's close. "There are other models, including the Fed model, that show fair value as high as 1,700 or 1,750." [View news story]
Individual Investors! Get Your Share Of Profits From The Fed [View article]
At the moment, I do not have a specific conclusion, but I think it is interesting. Bonddad has also done some work on gasoline usage.
Sorry I can't be more helpful.
Jeff
Individual Investors! Get Your Share Of Profits From The Fed [View article]
Jeff
Individual Investors! Get Your Share Of Profits From The Fed [View article]
I am having no trouble finding stocks that are trading at major discounts to normalized P/E. And the overall market has a huge equity risk premium. To me, this shows that most remain pretty skeptical.
I enjoy writing, and hope to do more rather than less.
Thanks again!
Jeff
Individual Investors! Get Your Share Of Profits From The Fed [View article]
I need to figure out some way to do an abbreviated version so that I am not completely MIA.
Thanks,
Jeff
Individual Investors! Get Your Share Of Profits From The Fed [View article]
Your comment aptly demonstrates all of the problems I outline in the article, so thanks for joining in!
Jeff
Individual Investors! Get Your Share Of Profits From The Fed [View article]
There are many factors affecting bond prices. The biggest single cause if low rates is pervasive world-wide fear of everything else and a flight to quality. This is why the equity risk premium is so high.
Another factor would be expectations for future inflation.
As you point out, there was a reaction as soon as QE was announced. This was obviously not due to actual buying, since that had not yet occurred. When we try to study a complex causal model, we need to get the sequence of events in focus. That is the first step.
If you go through my suggested readings, you will find several on this theme. Most of what is attributed to the Fed comes from trader misconceptions leading to self-fulfilling prophecies. This is true of food costs, energy costs, POMO and the market, and whatever else.
And it is further complicated because we do not know for sure what would have happened in the absence of QE.
Good question, but the answer is not so obvious.
Jeff