Last week, I noted that in the Q&A session following the latest Federal Reserve meeting that Chair Powell said that other monetary policy tools such as ‘yield-curve control’ were still under consideration. What is yield curve control, or YCC? Good question. A little background first. Now that the Federal Reserve has lowered interest rates to zero (okay, near zero, but effectively zero), what tools does it have? We know that the… Read More
Last week, I saw an interesting table from Goldman Sachs that estimated economic growth across the globe. The table looked exactly like the first four columns of this table, including the various highlights. Those columns show the annual inflation adjusted (or ‘real’) growth rates for those economies. I took their data and annualized 2020 through 2022 to see what they expect in the first year of the downturn and what… Read More
In response to the economic shutdown caused by covid-19, the government has effectively printed almost $5 trillion dollars. Congress passed a fiscal stimulus package of $2.9 trillion and the Federal Reserve has bought more than $2 trillion in bonds from the open market. Moreover, there is a debate in Washington to see whether Congress should pass another stimulus package and the Fed has committed unlimited funds to fight the economic… Read More
One of the phrases that we see over and over again these days is ‘since the Great Depression.’ For example, the employment situation reports on Friday showed that the unemployment rate was the worst since the Great Depression. In the Great Depression, unemployment reached 25 percent, and the second worst reading until last week was 10.8 percent. While perfectly accurate, I worry a little that using this phrase too much… Read More
The unemployment numbers on Friday weren’t surprising, but they were still shocking. The unemployment rate was 14.7 percent, and although that was better than expected, it’s still the highest reading by a long shot since the inception of this data in 1948. In fact, the unemployment rate only breached 10 percent in two of the recessions since then. The unemployment rate is an interesting and useful statistic, but it attempts… Read More
About one month after Lehman Brothers collapsed during the 2008 financial crisis, Warren Buffett penned an opinion piece for the New York Times that I found immensely comforting. You can read the article by clicking here, but the thrust of it was that even if he didn’t know what stock prices would do in the short-run, that stocks would make record profits in the future and he was buying stocks. My… Read More
Yesterday, the Commerce Department announced that the economy contracted by -4.8 percent in the first three months of 2020, the worst reading since the last quarter of 2008. Analysts expect that next quarter, GDP will drop by more than 30 percent, the worst in our lifetimes. Stocks surged. Surprised? One of the phrases that you see me write all the time is ‘better than expectations,’ or ‘worse than consensus.’ Investors… Read More
A few weeks ago, I wrote that even though stock prices were still volatile, the stress in the market was settling down; I called it ‘stabilizing, but turbulent.’ Financial journalists often write about the ‘market plumbing,’ and it occurred to me that plumbing is a good analogy for the difference between stress and turbulence. Volatility is like being in a nice hot shower and it turns ice cold. Obviously, something’s… Read More
Even in today’s economic environment, coming up with topics daily can be a challenge. So, when a reader asks a question, I am more than happy to answer it in this forum. Last week, I received a question in response to my article, ‘Chance of Recession: 100 percent.’ The reader wanted to know what the recession meant for bonds, especially in the coming months when markets will be volatile. That’s… Read More
One of the best decisions that our Investment Committee made was back in 2008 when we decided not to add commodities to the portfolio. It’s hard to believe now, but there was a lot of pressure back then to add it because stocks were down and commodities were doing well. If you look at the 12-month period ending on June 30, 2008 just before the worst part of the storm,… Read More
