On Tuesday, an extraordinary event took place as the Dow Jones Industrial Average surpassed 15,000 for the very first time. It’s a remarkable era we find ourselves in, witnessing such milestones of the modern financial landscape.
Just a century ago, society marveled at advancements like flying machines and the convenience of indoor plumbing; today, we are captivated by iPads and a soaring Dow. While iPads are undeniably impressive, a Dow at 15,000 reflects a more concerning reality.
The manipulation of interest rates and monetary policy by the government has muddled the distinction between genuine economic growth and mere illusions of prosperity. Although it can often be challenging to discern this difference, there are moments when the disconnection becomes glaringly obvious, especially when we witness extreme capital misallocation.
Take, for instance, the dot-com bubble of the late 1990s and the housing market crash of the mid-2000s. Initially, these periods appeared to herald real economic progress; however, upon reflection, they were merely mirages fabricated by flawed monetary policy.
For several years, it has been increasingly evident that we are sitting atop a Treasury bond bubble. When the reckoning will arrive remains uncertain. Continue reading
Last Friday, the Labor Department announced the addition of 165,000 jobs to the economy in April. While this figure might seem unremarkable, mainstream media outlets were quick to celebrate it as ‘better than expected.’
Consequently, Wall Street reacted enthusiastically, with the Dow climbing by 142 points and the S&P 500 reaching a record high of 1,614. On the surface, it seemed as though great achievements were unfolding.
However, a sense of skepticism lingered. Why would a jobs report barely keeping pace with population growth incite such fervor among investors? Surely a more impressive increase would be necessary to warrant such celebratory behavior.
Upon further analysis, one crucial aspect stood out: the numbers simply do not add up. In April 2008, 62.7% of working-age Americans were employed. By April 2013, that figure had dropped to 58.6%. Given the decline in employment, shouldn’t the unemployment rate be skyrocketing? Continue reading
This week, the Federal Open Market Committee convened, with the masses eagerly awaiting discussions. What were they deliberating?
Primarily, they focused on price controls, specifically controlling the value of money—an essential component of the economy. By regulating this price, they influence the cost of practically every good and service available.
Some argue that this approach is beneficial, claiming it will augment consumption and stimulate demand, potentially sparking a hiring boom. However, we remain skeptical.
The Federal Reserve seems to operate under the belief that the right mix of policies can restore economic vitality. But how can a handful of bureaucrats, armed with only a few charts, possibly determine what that mix is?
After days of discussion, they concluded to continue lending federal funds at near-zero interest rates. Furthermore, they decided to sustain the practice of creating money—approximately $85 billion each month—to purchase treasuries and mortgage bonds, until the unemployment rate falls to 6.5%. Continue reading
As May approaches, it’s time to revisit the old adage: ‘sell in May and go away.’ This strategy, while seemingly simplistic, has proven effective over time.
In fact, this approach has historically yielded significant returns. The Stock Trader’s Almanac suggests that if you had invested $10,000 in the Dow in 1950 and held it during the months of November through April, it would have grown to $684,073 by the end of 2011. In contrast, holding that same investment from May through October during those years would have resulted in a loss of $1,024.
This striking contrast begs consideration. If you’re hesitant to sell nonetheless, you may want to reflect on several other compelling reasons to reduce your stock holdings.
Notably, consumer sentiment, as gauged by the Thomson Reuters/University of Michigan index, declined in April to its lowest level in three months. Consumptive spending, which accounts for 70 percent of the economy, is crucial; a downturn in spending can adversely affect GDP. Continue reading
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