I read an interesting story recently about risk management in a book titled Red Blooded Risk by Aaron Brown. During World War II, the Air Force was trying to figure out the optimal amount of armor that should be added to it’s bombers. Since every pound of armor means one few pound of bombs, it means that more bombing runs will be needed to deliver the same payload. The Air… Read More
There was fairly downbeat sentiment surrounding commodities and commodity-linked stocks yesterday. The Bloomberg Commodity index hit its lowest level in 16 years, and is close to setting an all-time low since its launch in 1991. Not surprisingly, the dollar’s strength (up 1.93 percent yesterday and 9.66 percent year-to-date) in the wake of the Fed liftoff yesterday has been getting a lot of attention. Some investors thought that the increase in rates… Read More
As expected the Federal Open Market Committee (FOMC) raised interest rates a quarter of one percent so that the target range for overnight lending is now 0.25-0.50 percent. Importantly, the Fed said that rates would rise gradually from here, actually using the word ‘gradual’ twice in the statement. Also, somewhat surprisingly, the vote to increase rates was unanimous. I believed, and heard other commentators say, that there would likely be… Read More
Well, today’s the day that we will in all likelihood get news that after seven years, interest rates will come off of the floor. The Zero Interest Rate Policy (ZIRP) that the Fed has engaged in will finally be over. Although I have the feeling that what the Fed will do next will still dominate the conversation (when will they raise again, by how much, etc.), it will be nice… Read More
The junk bond market was under pressure again yesterday, but managed to finish off of their worst levels. The high yield market was roiled again after one hedge fund, Lucidus Capital, announced that it was shutting down its $900 million credit fund, and another hedge fund, Stone Lion, said that they were suspending redemption on their $400 million fund. This comes after news from last week that Third Avenue, a… Read More
The rout last week reminds me of the market tremors in August and September that caused the Federal Reserve to blink. Markets thought that the Federal Reserve would raise interest rates in the September meeting and were surprised when the Fed cited market turbulence when they kept the rates unchanged. In September, markets were worried about global growth and the sharp selloff in Chinese stocks, which had fallen 40 percent in a… Read More
Last September, I wrote that we avoid junk bonds because they are too sensitive to stocks, which means that a portfolio of stocks and junk bonds isn’t as diversified as a portfolio that has stocks and investment grade bonds (click here to see the original article). Over the last year, the S&P 500 has earned just 1.68 percent and suffered a 10 percent correction in the autumn. Junk bonds, as… Read More
Last Thursday, Mario Draghi, the President of the European Central Bank (ECB) disappointed markets by not increasing their current bond buying program. It was a shock to markets, although you wouldn’t really know it from looking at the stock market. The S&P 500 lost -1.44 percent, and while that’s a fair amount, it definitely falls in the normal category and not in the shocking category. The real action was in the… Read More
Confirm payrolls for November rose 211,000, above the consensus estimate of 200,000, which follows the strong and upwardly revised October reading of 298,000 new jobs. The unemployment rate held at five percent and the labor force participation rate rose slightly to 62.5 percent from 62.4 percent. After the terrible showing on Thursday, ‘Super Mario’ Draghi flew to New York and spoke at an Economic Club event. Knowing that his communications the day before had… Read More
Back in 2012, Draghi famously said that the ECB was ready to do ‘whatever it takes’ to preserve the euro. Although he was talking about keeping peripheral countries within the euro during their sovereign debt crisis, the ECB has developed a reputation over the past few years for exceeding investor expectations with their economic stimulus programs. That ended yesterday when the ECB failed to deliver the stimulus that markets were… Read More
