September 19, 2013

Investors react to "no taper"

Finally, the long-awaited tapering announcement: The US Federal Reserve announced "no taper" for now.

Bond prices immediately rose along with stock prices in the wake of the surprise announcement.

Tapering: What is it? Tapering is the gradual withdrawal of the US central bank's quantitative easing (QE) program. It is not the same as "tightening.”

September 12, 2013

Ideas to keep and discard five years after Lehman

Wow! It's been five years now since the bankruptcy of Lehman Brothers. The term since Lehman is ubiquitous. It has become a signature expression, even an infamous one. During that turbulent time, the fall of 2008, other banks fell, insurance companies collapsed and the solvency of money market funds and credit markets were called into question. Trade collapsed, the system seemed to freeze.

It was not just about Lehman. But the name "Lehman Brothers” has now become synonymous with the onset of the last recession, one of the worst since the Great Depression. Our last recession, “The Great Recession,” was severe, and because of the importance of the United States in the global economy, problems spread well beyond American borders, disrupting both emerging markets and the world’s other major economies. So, with the fifth anniversary coming up, it’s a good time to reflect on the crisis and offer some thoughts on its implications going forward.

September 9, 2013

Bond price erosion: Is the tide going out or coming in?

There is turmoil in world financial markets as late summer comes to 2013. This time, the problems aren't stock prices but falling bond prices. What is going on and should investors bail out?

The long-term averages should give comfort to investors, as bond prices often move in opposition to stock prices and provide a balancing-out effect, or a diversification benefit. Bonds have been a great tool to have in one's possession during recessions. But this is a period of US growth, and we’re seeing rising yields and falling bond indices. Where do we go from here? What do we do now?

September 3, 2013

Alternating currents: A balancing act

The news about the world’s economies continues to vacillate: faster growth, slower growth — the situation seems to change daily. In the United States, the reason for this is the slower speed of the economy compared with other periods. We are not struggling at “stall speed,” but we are not in a robust expansion either. The result is a constant flow of mixed messages – good news, then bad news, then more good news, overall balancing each other out to create a growth rate of around 2%. But is that bad news or good news?

This past spring, the manufacturing sector showed a disturbing slowing trend. But that current reversed direction in June, as manufacturing indices in the US all moved forward.

In another example, new home construction gained ground steadily all spring. Then suddenly housing stocks fell and new orders dropped. The consumer cycle, though more consistent, has also shown vacillation.