Larry MacDonald

Long/short equity, dividend investing, etf investing
Larry MacDonald
Long/short equity, dividend investing, ETF investing
Contributor since: 2006
Your thesis would be more convincing if it addressed issues such as accelerating employment growth, interest rates trending down to near historic lows, pent-up demand based on postponed household formation, easing of lending standards arising from continuing economic growth, regulatory tweaks to boost homeownership (e.g. lowering of down payment requirements) and so on.
Printing money can have an impact. If your street is piled high with bundles of $100 bills dropped from squadrons of helicopters, you and your neighbours will pick them up and send them. But there is usually a lag of 6 to 18 months between pulling the monetary lever and the impact on real variables. That’s why the current rally in the stock market could be premature.
Was the U.S. really pursuing inflationary policies over the last 30 years? Wasn’t the Federal Reserve, in reaction to the inflationary 1970s, pursuing price stability from the 1980s onwards? Did it not get inflation down until it reached price stability in the 2000s, as reflected in the CPI’s annual rate of change between 1% to 3%? It seems to me the last 30 years in the U.S. was a period of disinflation, followed by one of price stability.
The problem was not inflationary polices but the concept of price stability employed by policy makers: it did not include asset prices. Greenspan goosed monetary policy every time there was a dip in the economy because the lesson from the 1970s was that as long as inflation (i.e. the CPI) was under 2% - 3%, everything would be fine. He didn't realize asset inflation of 10% or more was dangerous too.
Fix this policy error by including asset prices in the definition of price stability and there is a good chance the imbalances, bubbles and volatility will substantially moderate. Of course, if asset prices are getting high, this monetary rule would entail at times that the CPI register negative rates of change – i.e. deflation in the standard sense.
More at: www.canadianbusiness.c...
Say what:
It's no twisting. MacDonald has accurately reported what Rosenberg wrote (see below)
"Let’s just say that the high-yield market, while clearly not as ‘safe’ as govies or bank paper (though less risky than equities), likely fits the “reasonable price” part of the acronym. I see that we have a bit of an anomaly on our hands — the average yield on a U.S. investment-grade bond right now is 4.6%, where it was back in November 2004. And today we have the average yield in the high-yield market at 9% — though it has backed up recently, the yield is pretty well back to the levels seen in November 2007.
Here’s the rub: In November 2004, the average yield in the high-yield space was 7%, not 9%. A reversion here would mean 200bps of relative outperformance for the high-yield arena.

Alternatively, we can look at it the other way — the last time we had the high-yield market at 9% on its average coupon was in November 2004, investment-grade yields were sitting at 5.6%, or 100bps higher than they are today.
Chart 1 depicts the yield spreads between high-yield and investment- grade corporate bonds. Yes, they have collapsed from their Armageddon levels of a year ago but when the economy is not in recession, this gap spends the majority of the time in a 200-400 basis points range and right now it is sitting at 415bps."
I second that. A timely, worthwhile piece.
good article
With an output gap = 7% of GDP and not expected to be closed until 2015 (Congressional Budget Office estimate) and capacity utilitization at historic lows, there shouldn't be any inflationary pressures for some time.
OK, lowering the price of money may not have much of an impact but what about raising the quantity of money?

Fitch cuts certain Berkshire Hathaway ratings
The Associated Press March 13, 2009
Fitch Ratings has downgraded Berkshire Hathaway Inc.'s triple-A issuer default rating and senior unsecured debt ratings by one notch, saying a top rating isn't appropriate for financial-oriented holding companies in the current volatile market.
The agency also said its ratings continue to reflect Fitch's long-standing concerns that Berkshire's fortunes are intimately tied to Chairman Warren Buffett and his investment expertise.
Great post.... Benjamin Franklin did something like this over a 2 century period. His estate set up two funds to lend money to help apprentices start their own businesses at 5% over 10 years. Costs kept low by having volunteer administrators. Worked out well -- is the lesson to skip indirect channels -- e.g. financial markets?

Should you add Cohen & Steers Global Realty Majors ETF (GRI) to the section entitled Broad International REIT Index ETFs? Also, it might help to have the date of the last update in the various sections of the ETF Selector so we know how current it is and don't make the mistake of assuming the lists are full representations of what's available.
Larry MacDonald is an economist who has been writing about financial markets since 1995. A noncommittal statement would leave the author leeway to wiggle out of his or her advice. Don’t see how that applies here. If in a year or two from now Spanish stocks are higher in absolute terms (for aggressive risk accounts) or relative to US stocks (for less aggressive accounts), we will clearly be able to say he was wrong.
To see how pairs trading can lower risk and increase the odds of a profit (albeit smaller), see the following links:
“The pairs trade helps to hedge sector- and market-risk.”
“By using ETFs to construct pairs trades, a portion of specific risk can be hedged and the odds of profit can likely be increased.”
ikkyu: See my Aug 20 post entitled "At Least Interest Rates Hikes Are Slowing Down" wherein the appendix has a note about selling the put options at breakeven. It was a bad trade to begin with but I was lucky enough to get out before the collapse.