The Independent Market Observer

What Should We Expect from Our Bond Investments?

September 30, 2014

One of the reasons investors fail to achieve their goals is that they have unrealistic expectations. When those expectations aren’t met, for whatever reason, they tend to sell.

Consider the well-known tendency to chase performance—that is, to buy a fund or stock that has been doing well. In doing so, the investor believes, he or she can expect future performance like that of the recent past. This leads to the momentum effect, which can drive prices up further, but ultimately may not be sustainable. When investors realize they won’t be getting the returns they expect, they sell, leading to downward momentum.

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Smaller Companies Underperform: Another Warning Sign?

September 29, 2014

The S&P 500 is a solid benchmark for the stock market. Tracking 500 large companies, diversified by industry and sector, its movements can give you a good feel for what’s going on in the U.S. financial markets and the real economy. These are blue-chip companies with strong balance sheets and market position, and they should continue to grow and make money over time.

Good investments, right?

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Europe’s Crisis Isn’t Over

September 26, 2014

Although I touched on a few specific examples the other day, finding a way to express the failure of economics in the face of politics is difficult. There aren’t many smoking guns out there.

Or so I thought. Fred DeBaets, one of our fixed income experts here at Commonwealth, sent around the following chart yesterday morning. It shows that nine countries—all in Europe—have negative interest rates for two-year government debt.

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Everyone’s Worried About the Boomers, but Are the Kids Alright?

September 25, 2014

A major concern of the baby boomer-dominated media, as well as the economics profession and government agencies (also dominated by boomers), has been the fate of—you guessed it—older workers, mostly boomers. How many of them are out of work and disabled, or able and willing to return to the workforce? Good questions, but hardly the only issues out there.

While I’m certainly worried about the aging boomers, my own position—right in the middle, in Gen X—makes me more concerned about the job prospects of the younger generation, who will be paying for my retirement (hopefully).

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Can Profit Margins Keep Climbing? (And What Does It Mean If They Do?)

September 24, 2014

How much money companies make—their earnings—is a key factor in analyzing how expensive the stock market is. Depending on what you expect earnings to do in the future, you might decide that the market is either:

  1. Very expensive (my own conclusion, based on longer-term valuation measures), or
  2. Quite reasonable, if you assume current earnings trends are stable and likely to accelerate.
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Why Investors Can’t Afford to Ignore Politics

September 23, 2014

As I wrote last week, the ties between politics and economics are only growing stronger. Let’s look at some current examples of how the two are intersecting—and what this means for investors.

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Why Is Consumer Spending Down?

September 22, 2014

One of the things holding back the economic recovery recently has been slower-than-expected consumer spending growth. Apparently, consumer spending has been constrained by Americans’ newfound unwillingness to borrow.

I suspect, however, that this is an illusion created by a deeper problem. Consumers have the money—in fact, net worth has recovered to an all-time high—they just aren’t borrowing and spending.

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Hope Versus Fundamentals: Scotland and the Stock Markets

September 19, 2014

Okay, I admit it. Not only did I get up to check the numbers on the Scotland independence referendum every hour or so last night, but I also spent a few hours earlier in the evening arguing with friends about it. I’ve never been this personally engaged in a foreign political event.

I find it hard to explain why this is, even to myself. I come from a Scots-Irish background, so that may be one reason. Another reason is that I identify with the romantic, hopeful aspirations that drive the independence movement.

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Yesterday’s Federal Reserve Statement: No News Is Good News

September 18, 2014

The important thing about yesterday’s Federal Reserve statement was—in the words of Sherlock Holmes—the dog that did not bark. The Fed's statement included the “considerable time” language that some, including me, had been obsessing over.

For those of you with lives, perhaps some clarification would help. As the Fed continues to move toward a more normal monetary policy, we're seeing two things:

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Meet the New Fund, Same as the Old Fund? Thoughts on Alternative Investments

September 17, 2014

I am headed to New York today to speak at a conference on liquid alternatives. These types of alternative investments are often thought of as hedge funds for the masses; the idea is to take hedge fund-like strategies and wrap them in mutual funds. Ideally, this makes the expertise and money-making capabilities of all those hedge fund wizards available to mom and dad, so we can all get rich.

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The Ties Between Politics and Economics

September 16, 2014

For many, the study of economics goes back to the eighteenth-century urtext, The Wealth of Nations, by Scottish economist and philosopher Adam Smith. Notably, Smith and his contemporaries did not study economics, but political economy. At the time, there was no notion that economic behavior could be analyzed separately from its context, the political environment. The different governmental structures made the impact of government on human behavior absolutely impossible to separate—the ties between politics and economics were inextricable. To put it another way, it would be like considering the health of the brain while ignoring that of the heart.

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What Will the Central Banks Do? It’s All About the Marios (and Janets)

September 15, 2014

I’ve been listening to satellite radio as I commute to and from the office, coming across songs I haven’t heard in years—and, in some cases, decades—and getting exposed to music I’ve never heard at all. 

One song in particular, “It’s All About the Benjamins,” recently caught my attention. I missed this song in its initial incarnation, but I heard about it during the financial crisis, when it became something of a theme song (at least in my mind) for Benjamin Bernanke’s Federal Reserve intervention. 

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A Mission Without a Clear Goal

September 12, 2014

I got some thoughtful feedback on my post yesterday about the aftermath of 9/11, and what has been accomplished—or not accomplished—since then. I genuinely appreciate the comments, both for the thought and time that went into them and also as prompts for refining my own thinking.

What many took away from yesterday’s post is that I’m against committing troops. That is partially correct, in that I’m against committing troops without a clearly defined American interest in play, a plan to attain that interest, and an exit strategy thereafter. I don’t think it’s too much to ask that any commitment of lives actually have a specific goal.

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13 Years Later, How Much Progress Have We Made?

September 11, 2014

Thirteen years ago, on a bright sunny morning, the world changed. A violent, apocalyptic form of Islam shocked America in a way we hadn’t been shocked since Pearl Harbor. Thousands of deaths, trillions of dollars, and more than a decade later, we remember those who died, both in the 9/11 attacks and in the wars that followed.

Today, the top headline is that the President has authorized expanded military action against an army of extremists terrorizing large parts of the Middle East. ISIS, as it is known, has successfully baited the U.S. back into the tar pit.

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Apple Wants a Slice of the Mobile Payment Business

September 10, 2014

I’m the archetypal Apple customer. Between my wife, my son, and me, we own five Macs (including work computers), three iPhones, at least three iPods, and two iPads. I understand the attraction of the whole Apple experience. That said, I haven’t been a fan of Apple stock.


I figure my family has already bought pretty much everything we could use from the company’s current product lines. In my mind, Apple is more of a movie studio than a regular company, in that it depends on a stream of hits to grow. Samsung and Android are nipping at Apple’s heels in the phone and tablet space. Google is pushing hard at the laptop space with its Chromebooks. And the desktop market is no longer a growth area.

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Government to Banks: Step Further Back from the Edge

September 9, 2014

One of the real problems Europe faces, in my opinion, is that its banking system has never really acknowledged its problems and raised capital to the extent it should have. 

The U.S. banking system, on the other hand, has raised substantial capital and pretty much restored itself to financial health—as the banks interpret it, anyway.

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Things Fall Apart: Scotland Edition

September 8, 2014

Even as the U.S. economy continues to improve, and signs of better times keep popping up—the most recent being a break in the oil price below $100 per barrel, which will support consumer spending—other parts of the world continue to show signs of weakness.

Today, I want to highlight something that hasn’t yet become a major worry for Europe, but probably will: the possible secession of Scotland from the United Kingdom.

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Signal and Noise: Evaluating the Employment Report

September 5, 2014

“When in danger or in doubt / Run in circles, scream and shout.”

Although the source of this quotation isn’t clear—several authors, including Robert Heinlein and Herman Wouk, come up—I suspect it was probably inspired by the stock market. In any event, the disappointing employment report released this morning is sure to generate some amount of angst.

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Myth Busting: The Fed Isn’t Really Bankrupt

September 4, 2014

My dad is a pretty level-headed guy, not prone to panic or take things too seriously, so when he forwards me an article asking whether it’s plausible, I take a look.

As I mentioned yesterday, when we compare the actual data with what the doomsayers predicted several years ago, they were just plain wrong. Nonetheless, they continue to try to sell their products by scaring people.

The article my dad just passed along—which suggests that the Federal Reserve is actually bankrupt—is a good example of this type of scaremongering. Posted on a site called Money Morning, it takes some facts, adds some possibilities, mixes in a good dose of “coulds” and “maybes,” and comes up with a set of implications designed to frighten people into buying whatever the doomsayers are selling.

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Market Thoughts for September 2014

September 4, 2014

In my latest Market Thoughts video, I provide an update on the financial markets and the U.S. economy, including potential risks, as we head into fall. 

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End of the World Update: Housing, the Dollar, and More

September 3, 2014

Over the past couple of years, various predictions of doom have been making the rounds.

The dollar, if you remember, was going to collapse. Ditto the housing market. The U.S. economy was going to go into cardiac arrest as it overdosed on Fed stimulus. Employment was never going to come back. I could go on, but you get the idea.

So, how accurate have these scary predictions been? As it turns out, we didn’t have much to worry about.

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Economic Risk Factor Update: September 2014

September 2, 2014

As we enter the month of September, it’s time to take another look at the economic forecast, focusing on factors that have proven to be reliable indicators of economic trouble ahead. As expected, the data hasn’t changed much from last month—it’s encouraging in almost all areas and has even improved in some cases.

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