Archive - August 2014

1
Will the Federal Reserve Bailout Stock Investors in the Next Crash?
2
Should You Have Gold in Your Portfolio?
3
Labor Market Weakness Is A Warning for Stocks
4
PE10 Problems Similar to Real Estate Bubble
5
Key Investment Insights: The Benefits of Diversification

Will the Federal Reserve Bailout Stock Investors in the Next Crash?

 

     Stocks seem to go up too much in part because investors believe in the Greenspan/Bernanke/Yellen Put option. The myth is that the Federal Reserve will try to bailout investors during a crash. But high stock prices are not a necessity unlike keeping giant banks and insurance companies solvent and liquid so stocks won’t get bailed out.
    If another horrible crash came there would be an outcry as people would claim that pension funds, etc. can’t meet obligations because their stocks went down 55%. The best guess about how the Federal Reserve and Congress would respond is that …

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Should You Have Gold in Your Portfolio?

American Gold Eagle

American Gold Eagle (Photo credit: Wikipedia)

We had a great question come in by request this week that we address the question of whether folks should have gold in their portfolios.

Gold can be included under the umbrella of a larger asset class known as commodities. Think of commodities as items used to make or produce other items – such as gold is used to produce jewelry, circuitry and coinage, while timber is used to make lumber and paper, while coal is used to make electricity and disappoint not-so-good kids on Christmas morning (sorry, couldn’t resist).

Getting back to gold, …

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Labor Market Weakness Is A Warning for Stocks

 

The weakness in the labor market is in the middle-skill non-college graduate area. This sector is losing jobs to lower wage Emerging Market countries. The U.S. economy is like a big ship that hit a small iceberg and was taking on water but the compartments have been shut to seal off the rest of the ship from the leak. The ship is sound and will survive. The “leak” is the loss of blue collar middle skill jobs to EM countries. This problem has no solution. It will continue until wages for this sector have become as low as the …

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PE10 Problems Similar to Real Estate Bubble

 


  To better understand the problems with the PE10 for stock valuation, let’s review the great real estate bubble. Generous government sponsored (GSE’s) financing from FHA, Fannie Mae and later Freddie Mac began in the 1930’s. It grew slowly for 30 years due to the public’s bad memories of the Great Depression. Then in 1965 inflation suddenly grew yet interest rates were often kept at negative real levels. The combination of being motivated by inflation and being nurtured by negative real rates made real estate irresistibly attractive in the 1965-1979 era. Then in 1984 banks started offering Easy Qualifier …

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Key Investment Insights: The Benefits of Diversification

Welcome to the next installment in our series of Key Investment Insights: The Benefits of Diversification.

In our last post, “The Myth of the Financial Guru,” we concluded with our explanation of the formidable odds you would face if you tried to outsmart the market’s lightning-fast price-setting efficiencies. Today, we turn our attention to the many ways you can harness these and other efficiencies to work for, rather than against, you.

Among your most important financial friends is diversification, arguably your “best” friend. After all, there is no other single action that you can take which would alleviate …

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