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Finance

Economics

Buybacks Are Better Than Dividends

Retail investors are in love with dividends more than they should be with significant fan followings and discussion forums online dedicated to the worship of dividend stocks. Clearly, dividends are seen as important because public companies love to brag about how consistent their dividend payments have been and how much they’ve raised them. Dividends are beloved because they give investors the allure of safety. Retail investors feel that a dividend payment is secure which means the investment is secure. However, in the financial crisis, dividend stocks fell about the same amount as the S&P 500. To be clear, dividend payments… Keep Reading

Economics

Monetary Policy Doesn’t Follow GDP

The Fed funds rate is a hotly debated topic because it’s the main policy tool the Fed uses. There is economic data which can be interpreted to support every argument. Furthermore, after the metrics are taken into account, the goals are subject to interpretation. Just because the core inflation rate goes above 2%, doesn’t mean the Fed needs to hike rates, as we have previously discussed. The Fed could determine that its mandate of creating stable prices is hit when the core inflation is 3%, as an example. We’ve seen the Fed ignore the data in 2017 because it felt… Keep Reading

Economics

Manufacturing Cyclical Weakness Coming?

In the financial media, it’s easy to see what the economists and analysts think about the current economy because usually they propose more of the same when asked about the future. It’s simple to extend the current trend indefinitely, but that’s not always a good idea, nor is it realistic. Even during economic expansions, there are mid-cycle slowdowns. While a slowdown doesn’t mean a bear market is coming for the overall market, it could mean a correction is coming in at least a few sectors. Therefore, it should affect how you allocate capital. Keep Reading

Economics/World

Trade Wars: Two Sides To Every Story

The purpose of this article is to objectively examine trade policy and its impact on the economy. While there will be discussion of government policy, our review is not negatively nor positively inclined towards any particular administration. During the presidential campaign trail, then Candidate Trump stated that he’d renegotiate trade deals to stop other countries from ripping America off. Following the election, for the first year of his presidency, it appeared there wouldn’t be any trade wars as promised. This belief existed because Trump met with Chinese President Xi Jinping last May in which he negotiated a deal to open… Keep Reading

Culture/Economics

Student Loans – A Generational Disaster

One of the biggest generational differences which causes a disconnect between baby boomers and millennials is student debt. Many baby boomers are confused why college graduates don’t immediately move out of their parents’ house like baby boomers did. The issue is that once a student graduates, they become debtors. It’s a vicious cycle which turns compound returns against borrowers. For example, say you graduate with $40,000 in debt and you owe a 4% interest rate for 15 years. While the federal government expects the loans to be paid back in 10 years, it takes the average Wisconsin graduate 19.7 years… Keep Reading

Economics

Correlation/Causation With Interest Rates, Inflation, And Stocks

Investors are trying to get a reading on where inflation will go in the next 12 months because it’s a key variable for forecasting asset prices and the Fed funds rate. As you can see from the chart below, the year over year core CPI will hit near 2.5% in late 2018 if the month over month increase is 0.16% in February and 0.19% going forward. Keep Reading

Economics

10 Year US Treasury Vs Stocks: Does Historical Correlation Matter?

We’re going to dedicate another article to re-discovering the relationship between the 10 year bond and the stock market. With bond yields skyrocketing in the 4th quarter of 2017 and the first 2 months of 2018, it’s more important now than ever to understand the relationship. The confusing aspect, which started during the correction in early February 2018, is that the financial media headlines blame yields going up for the stock market decline, but the yields and stocks often act in correlation. In a previous article, we discussed that historically when the 10 year bond yield gets to 5%, stocks… Keep Reading

Economics

US Debt Becoming A Problem For The Dollar

Some analysts speculated if the Fed would try to keep rates low to support the government’s spending binge. However, instead of worrying about the debt, the $400 billion spending plan and the tax cuts are being used as an excuse to raise interest rates and let the government bonds on the Fed’s balance sheet expire. At a conference on February 27th, which was right after Powell’s first Congressional testimony, Yellen and Bernanke were asked about the biggest risk factor facing the economy. Bernanke said geopolitical events and Yellen worries about how the Fed balances growth versus inflation. While these are… Keep Reading

Economics

Best & Worst Real Historical Returns: Where To Invest?

With the first stock market correction in over a year, having occurred in early February, there were many media narratives about what caused the selloff. We think it was driven by the unwind of the short VIX trade. Buying protection wasn’t considered important with the VIX at record lows in 2017. However, when nobody thinks there’s a need for protection, it’s probably a good idea to buy some especially since it’s cheap. Shorting the VIX is shorting protection. The stock market was like a car driving 80 miles per hour where the riders were betting against the need for air… Keep Reading

Economics

US Housing Is Becoming Unaffordable

We’ve discussed the price to income ratio of housing in a previous article. This gave us an idea of how expensive housing has become. We’ll discuss some of best points why real estate is too expensive and then provide the counterpoint explaining why housing isn’t in a bubble. Keep Reading

Economics/News

ECB Unwind Causes Monetary Conditions To Tighten

In January, the ECB tapered its bond buying from €60 billion per month to €30 billion per month. Equally as important, the central bank is expected to stop its bond buying completely by September 2018. European economic growth has accelerated recently, but it’s unclear how much the economy was helped by the QE and how much it was helped by the global synchronized economic recovery. The ECB policymakers will, of course, take credit for the success. This is just like how Janet Yellen is praised for keeping the economy out of a recession as if she was the sole reason… Keep Reading

News/Politics

Mick Mulvaney Admits He Holds Frightening Level Of Power As Head Of Consumer Bureau

White House Budget Director Mick Mulvaney has risen from the ranks of the House Freedom Caucus to become one of the most powerful Trump administration officials in the country, as he becomes the head of the Consumer Financial Protection Bureau (CFPB). He says his level of power should “frighten” the masses, because the amount of centralized power that has amassed in Washington D.C. “The structure of the CFPB is just fundamentally flawed. Authority that I have now as the acting director really should frighten people,” Mulvaney said on an episode of “Lou Dobbs Tonight” on Fox Business. “You can sit… Keep Reading

Politics

How ‘The FREE Act’ Could ‘Freeze’ The Credit Industry

Between May and July, hackers breached the cybersecurity of Equifax, a company that provides consumer credit scores, exposing the personal details of up to 143 million U.S. consumers. This information included names, driver’s license numbers, and Social Security numbers. Democrats immediately jumped at the chance to regulate the credit industry. Sen. Elizabeth Warren (D-MA) and Sen. Brian Schatz (D-HI) proposed the Freedom from Equifax Exploitation Act (FREE Act), a panicked, overreaching response to an event that doesn’t define or represent the credit industry. The FREE Act would ultimately enable the excessive and unnecessary regulation of a credit industry that provides… Keep Reading

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