Category Archives: The Broader Economy

On December 16, 2015, the Federal Reserve announced that it was raising interest rates. More specifically, it raised its target for the so-called federal funds rate. Before talking about just what is the federal funds rate, we’d like to point out what it is not: It is not mortgage rates It is not bond interest rates It is not muni bond rates It is not T-Bill rates It is not CD rates It is not the ...

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Over the weekend, the Greek Prime Minister broke off further talks with the European Union group over restructuring its debts. The European Central Bank froze funding to Greek banks, forcing them to shut their doors for a week to prevent a widespread bank collapse in Greece. This morning, stocks in all global markets are down, albeit not much more than we sometimes experience from time to time. US interest rates ...

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The Federal Reserve Board of Governors today released minutes from its January meeting, at which it apparently discussed the fact that it might not be able to continue its current pace of bond market manipulation. In case you've forgotten...the Fed is buying up hundreds of billions of dollars of public and private bonds in order to artificially hold interest rates low. It pays for this by flooding bank vaults with ...

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Summary of conversation we have with clients a few times a week: Aren't you worried about interest rates going up? The ten-year treasury is only paying 1.7%...rates are probably probably going to go up, and bond prices decline when interest rates go up. Why are you buying 10-year muni bonds? Simple answer: Because the muni bond yields are high enough to provide us a fair rate of after-tax return, even if ...

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Since the Major League baseball season is entering the mid-summer doldrums, we amuse ourselves every morning with the financial pages instead of the sports updates. And the play-by-play from Europe rivals any MLB division race. Will tough stalwart Angela Merkel hold off the aging southern European challengers, whose entire populations seem on the verge of a team-wide retirement at the ripe old age of 50? The story line changes daily ...

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A company with declining earnings and slowing revenue growth sold a small portion of itself to the public today for $18 billion. The underwriters for the offering priced the company at about 100 times its last 12 months' earnings. By comparison, Apple and Oracle are selling at around 13 times earnings; industrial bellwether GE can be bought at about 16. If Facebook's earnings rise enough to result in a P/E ratio similar ...

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We get calls from journalists from time to time. Here are links to a few of our thoughts, as reported by online news sources: FoxBusiness had Rick as a guest again, talking about investing in 2012. "Invest cautiously in 2012. Preserve capital." The Chicago Sun-Times interviewed Rick about higher-yielding investments. September 2011. "In his view, the stock market is priced for 'a continued and unbroken economic recovery.”'But the bond market 'is priced for a ...

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Debt Reduction the Post-War Way In the 35 years following the end of WWII, the rate of inflation exceeded the interest rate on our government's debt about a quarter of the time. The so-called "real rate" of interest was negative, and materially so. In the estimation of Carmen Reinhart and Belen Sbrancia, in a paper published in March of this year, a negative real rate of interest resulted in America's goverment ...

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Our hearts and hopes are with Japan. The earthquake, tsunami and nuclear crisis are inflicting untold suffering on the people of a proud and noble nation. We wish them a quick and safe return to some semblance of normalcy. While our hearts think only of the human toll, with our heads we think about our clients' portfolios. We spent time over the weekend and these past few work days considering what, ...

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Nov
03

The monetary printing presses, that is. As expected, the Federal Reserve Board of Governors announced today the resumption of its "Quantitative Easing" program. That's a nice academic euphemism for "printing money." The Fed will be reaching out into the capital markets and buying six hundred billion dollars of Treasury bonds. For reference, that's about half of current annual federal borrowing. The objective of the policy is to pull down longer-term ...

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