Nearly a decade after the financial crisis interest rates remain at zero. Fed watchers have been arguing for years that policymakers will soon raise rates, only to see the possibility put off yet again (and again and again). While many believe Yellen and company have stuck with ZIRP due to worries about the impact of a hike on the stock market, a bigger concern might be housing.
Warren Buffett famously advised investors to “be greedy when others are fearful.” With stocks all over the world getting clubbed in recent days, there is no shortage of fear out there. The question is: will all that negative sentiment become another “wall of worry” that the markets climb to new highs? I can’t say for sure. No one can. I will say that during yesterday’s gruesome selloff, I spent more time adding to my fund’s short book than searching out potential buys. That’s because, even with the Dow and S&P suffering their worst weekly declines in four years, I still see wildly, even stupidly overvalued companies everywhere I look.
Late last month the Commerce Department revised first quarter economic growth from its initially tepid .2 percent estimate to a putrid negative .7 percent. There was no shortage of excuses for these results. The West Coast port slowdown was cited, as was the usual whipping boy, severe winter weather. In April, CNBC analyzed 30 years of GDP data and showed that first quarter growth persistently underperforms expectations. Whatever the reason, or reasons, the fact remains that –seven years in–we are still mired in the slowest post-recession recovery in US history.
And, to paraphrase Humphrey Bogart, things are never so bad that they can’t get worse.
Another week has brought yet another much-publicized call for the Federal Reserve to delay raising interest rates. Yesterday, the International Monetary Fund opined that the Fed should hold off on a rate hike until 2016.
Give me a break.
Apologies for the sporadic blogging of late. I’ve been travelling a fair amount and I also wrote a piece for CNBC.com on the Five Ways to Spot a Dead Company Walking.
Two important and closely connected events took place in the world of finance since my last post. First, former Fed chair Ben Bernanke announced that he was taking a job as an “advisor” at the massive hedge fund Citadel Group. Then the stock of Goldman Sachs hit $200 for the first time since January of 2008. You might not think these things are related, but to me, they’re inextricably linked–and extremely dispiriting.
More than half a century ago, President Eisenhower warned the nation about the burgeoning Military-Industrial Complex. That monstrous public-private hybrid now sucks up more than half of all discretionary spending. But these recent events prove that the Wall Street-Washington Complex might be even more dangerous.
[note: this post originally appeared on my Yahoo! Finance contributor page]
For the past few weeks, Wall Street pundits and prognosticators have been loudly citing every hint of bad economic news as a reason the Fed shouldn’t follow through with its pledge to boost interest rates. “Corporate earnings are down!” they’ve shouted. “Job growth is decelerating! Inflation dropped to zero again! We can’t raise rates in this environment!”
It’s time to stop listening to these market Cassandras. We not only should raise rates, we must raise rates.
(Note: I have started writing for Yahoo! Finance’s new contributor platform. This piece originally appeared there. You can find it by clicking here. If you have a tumblr account, please feel free to follow me to receive my latest posts in your dashboard. If you don’t, I will continue to post them here, as well. Thanks!)
With the Nasdaq hitting 5000 last week and all the talk about whether we’re in a new dotcom bubble or not, it’s been easy to overlook something: most stocks are having a ho-hum 2015, at best. After Friday’s steep selloff, the Dow is virtually flat since January 1st and the S&P 500 is up a grand total of 13 points, or .6 percent, over that same period. The Russell 2000 has fared slightly better. It’s gained about one percent. That’s not bad. But it’s not exactly the stuff that bubbles are made of.
So, is the bull market stampede finally starting to slow? I’m always hesitant to make predictions. For all I know (or anyone else), the markets could rally again this week and shoot up double digits yet again by year’s end. But I will say that the same negative effects that have dampened stocks so far in 2015 will almost certainly get worse in the coming months.
Before I get into blogging, I’d like to thank all the people who have written to me about Dead Companies Walking. I’m sorry I haven’t been able to respond to most of the messages, but I do try to read every email that comes in and it’s a thrill to hear that people are enjoying the book. Thank you for buying it and thank you for reading it!
Okay, on to this week’s blog:
Possibly the greatest surprise in 2014 was the decline in government bond yields. Ten-year treasuries fell from 3 percent to 2.2 percent by year’s end. Last month, I said that yields were unlikely to fall much further. Guess what? They did just that, dropping to 1.8 percent last week after hitting 1.65 percent two weeks ago. This surprisingly rapid drop in rates didn’t just prove (yet again) how silly it is to make financial predictions, it also has two important implications for investors:
I realized in all the excitement with the release of my book this week that I haven’t taken a moment to wish everyone a Happy New Year!
I’d also like to thank everyone who has emailed me and left comments here and elsewhere complimenting the book*–not to mention the editors at Amazon who named it one of the Best Books of the Month and the folks who have written about it this past week like Bram de Haas at Seeking Alpha and Martin Zwilling at Forbes. My co-writer Jesse Powell and I worked hard on the book for several years and I’m quite proud of it, so it’s great to hear that people are appreciating what we produced.**
Okay, now back to blogging.
It’s the silly season in the financial world. Everybody and their uncle is going around like Carnac the Magnificent making all sorts of predictions about what 2015 will bring. Of course, nobody actually has a clue what’s going to happen ten minutes from now, let alone six or twelve months down the line. Our economy and our markets are so massive, so complex and dynamic, that only a fool or an egomaniac would offer his outlook and advice for the coming year.
That being said, here is my outlook and advice for 2015:
In case you missed it, a foreign company nobody had ever heard of until recently staged a gigantic IPO this past week. But lost in all the hype and hoopla was a much more important development here at home: the beginning of the end of the US real estate slump.
New-home sales in the U.S. surged in August to the highest level in more than six years, a sign that the housing recovery is making progress.
Purchases of new houses jumped 18 percent to a 504,000 annualized pace, the strongest since May 2008 and surpassing the highest forecast in a Bloomberg survey of economists, Commerce Department figures showed today in Washington. The one-month increase was the biggest since January 1992.
The oldest adage in the investment game is, of course, “Buy low, sell high.” The second-oldest is, “Don’t fight the Fed.” And with the August housing numbers, the Federal Reserve’s monomaniacal six-year campaign to reconstruct the real estate sector from the ashes of the subprime catastrophe is finally starting to show results. At the same time, the stocks of major homebuilders like Pulte, KB Home and DR Horton are all down YTD.
Hear that knocking? That’s a little visitor named opportunity.