The Painful Price of Subsidized Money
Bond yields have been generally declining, and the market as a whole is set up for them to continue the trend.
Not bad, right?
It's extremely dangerous – to all investors – because it can't go on forever. It's not a question of if this might happen, it's a question of when.
Fortunately, there's one antidote to this poisonous path. But first, you need to see the path we're on and its dire consequences.
Bonds are integral to the entire financial system and the economy as a whole. At some point sooner rather than later, bond yields will start rapidly increasing – and the bond market will become a Death Star, devastating the global economy.
Since 2008, and to a large extent since 1995, the bond market has been subsidized by the Federal Reserve, which has consistently printed more money than the economy demands – with broad money supply rising by over 8% a year since 1995, compared to a nominal GDP rise of less than 5%.
That subsidy has been hugely increased since last September, with the Fed buying $85 billion monthly of long-term Treasury and mortgage agency bonds.
This Tech Sector Slice is 58% Hotter Than the Rest of the Market
Noted tech researcher IDC says that global PC shipments plunged 14% in the first quarter.
That was almost double the 7.7% decline IDC had been expecting, and was also the biggest year-over-year free-fall since the market-intelligence firm started tracking PC shipments 20 years ago.
This wasn't a one-time event, either: It marked the fourth straight quarter that worldwide PC shipments had fallen.
No wonder the pundits are talking about the "Death of the PC."
After reading one of these high-tech eulogies, I'm betting that the last thing you want to do is to invest some of your carefully saved capital into any part of the semiconductor sector.
After all, those complex microchips are the "brains" of a computer: So if the PC sector is getting battered, it stands to reason that the chip sector would be getting thrashed, as well – meaning the best move is to stand clear of both.
Don't make that mistake.
While PC stocks should be relegated to the tech-investor's version of an isolation ward, semiconductor shares have been on a roll since the start of the year and will continue to be one of the best ways to generate big profits for some time to come.
If you buy the right ones, that is.
Why You Can't Afford to Ignore the Hindenburg Omen
The Hindenburg Omen-a harbinger of stock market crashes-eerily appeared again last week…and the Dow Jones promptly dropped 205 points. But its appearance brought mostly scorn from the mainstream financial media.
Here are just a few of the headlines from the past week:
- "Hindenburg Omen is Just Hot Air"
- "Why 'Hindenburg Omen' Is Just a Superstition"
And our personal favorite:
- "Hindenburg Omen is idiotic, and if you believe in it, you should lose your right to own stocks-or anything"
Several Wall Street analysts reacted as if even being asked about the Hindenburg Omen offended them.
"Let's not mince words on this subject: This is an example of the worst kind of 'technical analysis' – a market signal essentially designated for media sound bites," Adam Grimes, chief investment officer at Waverly Advisors., told The Wall Street Journal. "The markets may well decline from this point, but they will not do so because of some cleverly named signal. The Hindenburg Omen, we have to say, is mostly hot air."
Nonbelievers in the Hindenburg Omen say it correctly predicts a stock market crash only 25% of the time, and point out the last time it appeared, in 2010, the markets just kept on rising.
"In 2010 the accuracy of the 'Hindenburg Omen' indicator went up in flames and the current situation suggests the same result in 2013," huffed Daryl Guppy on the CNBC Web site.
Yet an appearance by the Hindenburg Omen has preceded every stock market crash but one since 1985, and if you look closely at the numbers this indicator's track record is remarkably accurate.
Maybe the doubters don't know as much as they think they do.
"They call it bogus because they don't understand it," said Money Morning Chief Investment Strategist Keith Fitz-Gerald, who called the Hindenburg Omen one of his favorite indicators.
European Central Bank Does Nothing – But Markets React in Big Way
"Maybe next year…" was basically the message sent today (Thursday) from the European Central Bank (ECB).
The European Central Bank left interest rates unchanged despite slightly lowering its outlook for the ailing Eurozone economy for the remainder of 2013. But, it sees a gradual recovery in 2014.
The ECB forecasts Eurozone GDP will contract by 0.6% this year, down from its March projection of 0.5%. However, it modified its 2014 estimates, predicting a return to growth at a rate of 1.1%.
"Euro-area economic activity should stabilize and recover on the course of the year albeit at a subdued pace," ECB President Mario Draghi said at a news conference.
The region has been stuck in recessionary mode for six consecutive quarters. But Draghi cited improving economic data in May as reasons for not taking immediate action.
"But we stand ready to act, and we will continue to monitor closely all incoming data," Draghi said at a news conference. He added the ECB would remain "accommodative" for as long as necessary.
Draghi also staunchly defended the ECB's actions, saying the bank's outright monetary transactions launched last year were "probably the most successfully monetary policy measure undertaken in recent times."
Draghi said the policy had no negative affect on markets.
"The ECB hasn't done anything to increase volatility in the markets," Draghi said. "If you think the ECB has done anything comparable to other central banks, we wouldn't agree."
After today's ECB briefing, the Stoxx Europe 600 Index fell 0.4% to 294.04, setting it on pace to close at the lowest level since late April. Banks suffered some of the steepest losses.
European bond yields plunged the most in three months, with Portugal taking the worst hit.
How to Get Out of Student Loan Debt in Bankruptcy
Anyone wondering how to get out of student loan debt – or wondering if a slew of student debtors could try to do so – needs to read this.
Yesterday, I wrote about the case of Michael Hedlund, the failed law student who was able to discharge $58,000 of his student loans in a 10-year bankruptcy action.
Before Hedlund's case, it was widely accepted that there were only two ways to get out of student debt: pay it off, or die.
But the Ninth Circuit took a long, hard look at Hedlund's circumstances. It found that he'd acted in good faith to repay his loans, and that paying the full amount would be an undue hardship for Hedlund and his family.
The court viewed Hedlund as an "ideal debtor," and so it excused a large portion of his debt.
If you are a student debtor, you too could have a decent shot at discharging your student debt in bankruptcy, but only if you are an ideal student debtor.
But what makes an ideal debtor?
IRS Scandal Exposes a Long History of Outrageous Abuses
The IRS scandal of allegedly targeting conservative groups for extra scrutiny may just be the tip of the iceberg. Unanswered questions abound about the powerful agency's involvement in Obamacare and partisan politics.
Using the IRS as a presidential pit bull is a fine old bipartisan tradition going back to Franklin D. Roosevelt's administration and refined by Richard Nixon.
As we wait for what is sure to be the Summer of Endless Congressional Hearings, to be followed by the Winter of the Independent Special Prosecutor, let's have a look at some of the IRS' most notorious shenanigans – old and new.
How to Invest in the U.S. Natural Gas Revolution
It's no secret America has been in the midst of a natural gas revolution.
The technological advancement of fracking is causing nothing less than a full on shale boom, opening up amazing new profit opportunities if you know how to invest in natural gas – which I'll get to later.
According to the International Energy Agency (IEA), shale's share of U.S. oil & gas production will soar over the next 20 years. By 2035, the agency expects as much as 25% of U.S. oil and 50% of U.S. gas production will come from this source alone.
Thanks to the complexity and time involved, fracking a well is expensive, with costs running up to $10 million per well. It also requires a lot of room, a number of vehicles, and sophisticated and powerful equipment to get the job done.
But finding, drilling, and production costs are coming down as efficiencies are being gained. And this phenomenon will accelerate the rate at which supply hits the market.
Since late 2010, the time to drill a Bakken well has fallen dramatically – from 36 to 22 days currently.
Why It Pays to Invest in Emerging Market Dividend-Payers
An unexpected change of heart happened in May that you might not have heard about.
After years of resisting any path other than its rigorous course, Germany announced it is backing off from pure austerity and is now planning to spend billions of euros to stimulate the economies of Europe.
Germany, which had been the economic rock of Europe, was facing fissures in its economy as well as an upcoming election season.
With pressure building, Finance Minister Wolfgang Schäuble and Chancellor Angela Merkel are now "willing to abandon ironclad tenets of their current bailout philosophy," says Spiegel Online.
The Scariest Obamacare Facts Yet
There have been fears surrounding the "real" Obamacare facts since the Affordable Healthcare Act was first mentioned.
"An unfolding disaster for the American economy," 2012 Republican presidential frontrunner Mitt Romney said of Obamacare. Fellow candidate Rick Santorum called it "the beginning of the end of freedom in America."
Signed into law on March 23, 2010, Obamacare was peddled to Americans as the answer to the precarious problems plaguing the country's healthcare system.
Among its promises were: uninsured Americans were to gain coverage through an expansion of Medicaid; insurance providers couldn't deny coverage to individuals with pre-existing conditions; employers had to offer health insurance to employees; and costs would come down.
As many Obamacare provisions start to kick-in, the nation is finding out how the sweeping health care overhaul fails to live up to its promises.
At over 20,000 pages long, the legislation is full of stipulations chipping away at what it claimed it would achieve.
Following are some of the most alarming Obamacare facts uncovered to-date.