2012-09-28
I do quite a bit of US travel. Last week I was in Colorado. Now I am writing from Sacramento. I always encourage questions from my audiences.
But something has changed in the last few months. Hostility to either the president, Barack Obama, or his rival, Mitt Romney, has risen to heated levels. In fact, sometimes this hostility has begun to push investment discussions off track. Political vitriol seems to infuse all questions, and comments about the markets are often misconstrued and twisted.
Business cycle lies outside realm of politicians
I do quite a bit of US travel. Last week I was in Colorado. Now I am writing from Sacramento. I always encourage questions from my audiences.
But something has changed in the last few months. Hostility to either the president, Barack Obama, or his rival, Mitt Romney, has risen to heated levels. In fact, sometimes this hostility has begun to push investment discussions off track. Political vitriol seems to infuse all questions, and comments about the markets are often misconstrued and twisted.
2012-09-24
There are several ways investors look at stocks to assess their relative value. Many look to the stock market’s price-to-earnings or P/E ratio; others flip that ratio to look at the market’s earnings’ yield. I think the more compelling measure, however, is one that shows how stock yields compare with bond yields. The difference between these two yields is the equity risk premium.
This premium is one of the best indicators I have found to determine whether investing in stocks is a better option than putting money into bonds. It represents the extra return that investors demand for investing their money in a risky versus a low risk asset. The premium, now at 4.5%, is extremely high, suggesting that stocks are a better value than bonds.
What the equity risk premium is telling us
There are several ways investors look at stocks to assess their relative value. Many look to the stock market’s price-to-earnings or P/E ratio; others flip that ratio to look at the market’s earnings’ yield. I think the more compelling measure, however, is one that shows how stock yields compare with bond yields. The difference between these two yields is the equity risk premium.
This premium is one of the best indicators I have found to determine whether investing in stocks is a better option than putting money into bonds. It represents the extra return that investors demand for investing their money in a risky versus a low risk asset. The premium, now at 4.5%, is extremely high, suggesting that stocks are a better value than bonds.
2012-09-14
European politicians have been doing their best to calm panicked markets in the last couple of weeks. First, the European Central Bank (ECB) assuaged markets with its proposal to purchase member country bonds on secondary sovereign markets on the condition that these countries apply strict structural reforms under European supervision. In doing so, ECB President Mario Draghi put the ECB's credibility on the line. But his pledge to provide liquidity and bond support for struggling countries such as Portugal, Spain and Italy should help them keep their borrowing costs from rising too high.
Markets breathe easier after Germany okays bailout
European politicians have been doing their best to calm panicked markets in the last couple of weeks. First, the European Central Bank (ECB) assuaged markets with its proposal to purchase member country bonds on secondary sovereign markets on the condition that these countries apply strict structural reforms under European supervision. In doing so, ECB President Mario Draghi put the ECB's credibility on the line. But his pledge to provide liquidity and bond support for struggling countries such as Portugal, Spain and Italy should help them keep their borrowing costs from rising too high.
2012-09-10
We just saw the US jobs number for August. Despite the unemployment rate falling a bit, the news was not encouraging.
As you may know, I focus a lot on the "hours worked" component of the employment number. The economy can grow even if new job growth is slow, provided that the companies in the United States are working their existing workers longer hours. Having existing workers work longer hours means these workers will make, and presumably spend, more money. That spending is what generates 70% of the growth in the US economy. If the number of hours worked is rising, we can surmise that new job hiring may lie ahead because there is a limit to how many hours each worker can work.
Yellow Flags: Two Worries Now for the "Risk On" Crowd
We just saw the US jobs number for August. Despite the unemployment rate falling a bit, the news was not encouraging.
As you may know, I focus a lot on the "hours worked" component of the employment number. The economy can grow even if new job growth is slow, provided that the companies in the United States are working their existing workers longer hours. Having existing workers work longer hours means these workers will make, and presumably spend, more money. That spending is what generates 70% of the growth in the US economy. If the number of hours worked is rising, we can surmise that new job hiring may lie ahead because there is a limit to how many hours each worker can work.
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