The Chinese central bank made its first move in four years to cut its interest rate target by .25%. The move was seen as a defensive maneuver as Europe still struggles with fiscal concerns stemming from the so-called PIGS nations.
It was believed for a long time that China may have been entering an asset bubble similar to the US housing crisis. Housing prices have skyrocketed in metro areas, which made it possible for the economy to grow at a pace well in excess of every nation around the world for more than a decade.
Chinese Rate Cut Good for Commodities
Warren Buffett had a rare miss in his economic calls. The Oracle of Omaha expected a recovery in US housing and real estate prices by 2012.
In his most recent 2011-2012 Berkshire Hathaway letter to shareholders, Buffett noted that his call was incorrect. Housing remains in what he calls a “depression of its own” but still believes that the real estate market can be viewed as recovering. He remains bullish on housing prices.
Buffett on Employment
As the recession lags on for what seems like eternity, the prospect of a student loan bubble is on the top of everyone’s minds.
This is especially the case with so many people unemployed.
If college graduates are leaving school to the same, weak job market, then why would college degrees make any sense?
If students are taking on more student loans but earning less, a student loan bubble might just be the only realistic outcome.
Remember, the Obama Administration did announce a student loan forgiveness program to deflate any bubble before it pops.
Student Loan Bubble: Why It Happened
The Federal Reserve reports the M0 money supply, the amount of physical cash and reserves held at the Federal Reserve by member institutions.
Recently, the M0 money supply seems to be falling, indicative of big changes in the economy. Generally, the M0 money supply is held mostly constant. The “monetary base,” as it is known, changes mostly due to Fed involvement in driving down interest rates.
The Fed hasn’t been actively buying securities, nor is it reducing the amount of securities it holds from the open market.
Fed M0 Money Supply Figures
Here is a chart of the M0 money supply as most recently reported:
EGShares is a relatively new entrant to the exchange-traded fund industry, but a new fund from the company could prove to be invaluable to long-term investors.
The EGShares HILO exchange-traded fund has a very noble goal—increase the yield available to investors in emerging markets while reducing volatility. The fund seeks out companies that pay attractive dividend yields, while offering the natural growth of the emerging market countries.
The fund also hopes to calm investors’ minds by seeking to eliminate volatility, which typically affects emerging market countries and their respective industries more than US-based equities.
High Yield and Low Beta
With Wall Street always unhappy about the jobless recovery, one has to wonder how many more jobs does the US need to end the recession?
According to the Wall Street journal, it would take some 6.6 million new jobs to return the economy to pre-recession levels. The report showed joblessness in America after the most recent recessions, and no recession to date has been as deep as this one.
It seems that everyone is predicting a US recession in 2012. Due to the slowdown in Europe, concerns over growing national debt figures, and a jobless recovery in place, the prospect of a new US recession in 2012 looks probable.
In fact, the financial markets are already predicting recession is certainty.
US Recession: The Facts
Poorly named the “Millionaire Tax” or “Buffett’s Rule,” President Obama plans a new tax overhaul that would require a minimum level of taxation for those who make $1 million or more per year.
The basic idea is simple, the United States government would assess a minimum tax rate on earned income for those who take home more than $1 million in a single year. It would not matter the source of the income—wages, earned income, or investment income, which is currently taxed at the long-term capital gains tax rate of 15%–but how much someone earns.
The American real estate market may be underwater, but a new buyer is stepping into the ring to boost market prices – hedge funds.
Historically, hedge funds have been limited to investments in the stock and bond markets. In fact, their name is derived from a market strategy (hedging) where fast traders move in and out of a position to profit on minute differentials in security pricing from market to market. Recently, high frequency trading has made hedge funds even more profitable.
But now hedge funds want a piece of main street. The new asset class of the hedge fund universe is the single family home.
Real Estate Needs Hedge Funds
Quantitative easing 3, better known as QE3, now looks like a sure bet. A combination of a weakening economic environment plus a call from market participants for the Fed to “do something” should lead investors to believe that the next round of monetizing of the Federal debt is sure to come.
QE3 explained: For those needing a quick recap, quantitative easing is a market action where the Federal Reserve trades current liquidity for short- and long-term US debt. By purchasing US Treasury obligations, the Federal Reserve can drive up the price of bonds, and drive down yields. Driving down yields is a great way to reduce interest rates across the financing landscape.
Will QE3 be a success?
Just yesterday we posted about how banks run on net interest margin, the difference between their cost of acquiring capital and their net interest earnings on the capital they lend to borrowers. Now that we’ve covered how banks make money, let’s cover why they don’t: banks can’t make loans to small business owners.
In a recent appearance before the Federal Reserve, Jamie Dimon, CEO of JP Morgan, explained his biggest fear to Fed Chairman Ben Bernanke. In his short speech, Dimon said that he worried new regulations would prevent capital from flowing to the people who need it, stifling any economic recovery.
He’s Right; Businesses Can’t Get Money
A report from the US Pentagon asserts that a number of countries may have allied together to create the financial crisis of 2008 for economic gain. The paper says that at the height of the selling spree, banks in Venezuela, Russia, China, and other countries sold off securities in mass quantities to launch a near financial Armageddon.
The paper, however, does lack in substance.
Financial Terrorism in Equity Markets
Retail stocks are traditionally highly-levered to the general economy; when the consumer is weak, real estate gets pummeled, but when the consumer comes on strong, retail stocks experience a revival.
This past week, one unlikely company reported smashing success.
Even though retail spending has been weaker, especially on the higher-end luxury and mid-to-high priced clothing category, Dilliards reported year-over-year growth in profits of 57%.
Dillard’s Secret to Success
The Wall Street Journal reported over the weekend that the average college graduate who left school in 2011 left school saddled with $22,900 in debt, a record high. After breaching a new high for almost a decade straight, some are wondering if it even makes sense to invest in a college degree.
Do College Degrees Make Sense?
Wall Street is on a tear, commodities are surging, and everywhere you look it’s as if the world is borrowing like it’s 1999 again. Money is cheap, and there is little reason not to take out a loan when the net cost to you, after inflation, is just about zero. This much is reflected in the reality that more and more money is flowing into negative carry assets.
But what about the average Joe? Are things as good on Main Street as they are on Wall Street? Read more…
In the coming days, weeks, and months we’re sure to hear a lot about the US Government’s debt ceiling, but if you don’t know what it is, how it works, and why it matters, then you can’t possibly know why the debt ceiling is so important.
We’ll break the US debt ceiling down into two major pieces: what, and why we have a debt ceiling.
What is the US Debt Ceiling
The BRICS group is emerging as a world superpower in terms of international trade. The five countries—Brazil, Russia, India, China, and South Africa—are leading the world in growth, with each having its own unique “core competency” for marking money. Let’s break down each BRICS country, what they do, and how they will affect the future.
Making Sense of BRICS
The United States had better act, and had better act fast; that was the message from the Brics economic group which agreed to unilaterally remove the dollar from its international trading pact.
The group will now account for international commerce between one another in their own currencies, rather than the US dollar; doing so means that they are free to set monetary policy that can affect only themselves and better account for their own domestic and international trading volumes.
The Dollar as a reserve currency
So just how high will gas prices go before they retreat? At the time of writing, the price of a barrel of oil has surged from >$40 in 2009 to $111 in 2011, but where will the final resting place be? We’ll break down oil’s rise, and give a 2011 projection below.
So green investments aren’t at all risk-free, everyone knows that. But they’re not as safe now as they were before the nuclear disaster in Japan. With plenty of controversy surrounding nuclear’s future, it’s probably a good time to start thinking about how to play the green energy wave.
Driving Green Investments
There’s plenty of talk around the world about the future for currency. Some say it should be gold, some say silver, and even fewer say that the next money should be privately minted by individual people, persons, and mints. But most who want an alternative to the greenback are in the market for something backed by a commodity.