Daily Reckoning

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  • Here’s Why You Shouldn’t Fear a Trade War

    Here’s Why You Shouldn’t Fear a Trade War

    This post Here’s Why You Shouldn’t Fear a Trade War appeared first on Daily Reckoning. The Dow Jones took its eighth consecutive licking yesterday — its worst streak since last March. Down too was the S&P… and the Nasdaq. VIX, Wall Street’s “fear gauge,” was in panicked spasm. For the explanation, we turn to CNBC: “Dow drops about 200 points on trade worries, extends losing streak to eight days.” It is the trade wars — again. Trade-sensitive stocks such as Boeing and Caterpillar took the heaviest rattling yesterday. “The focus has been back on tariffs,” confirms Michael Hans, CIO of Clarfeld Financial Advisors. Meantime, Goldman Sachs thinks “further escalation seems likely.” But in the face of trade upheaval, where can the smart investor find refuge? Gold, perhaps… or maybe Treasuries? Or something else altogether? We put our agents on the case: “Go find us an investment that will advantage our readers while trade war hammers the markets!” Dutifully, they soon reported a beacon of light… an investment class that has soared as trade war fears shake the overall market. “While the U.S. and China are embroiled in an escalating trade war,” affirms ETF Trends, this investment is “outperforming.” It is …Read More »
  • The 5-Year-Old Named Wall Street

    The 5-Year-Old Named Wall Street

    This post The 5-Year-Old Named Wall Street appeared first on Daily Reckoning. My youngest son Caleb is 5 years old. And just like any healthy 5-year-old, he’s constantly moving. One of his favorite things to do is to play “tackle” with me on the living room floor. It’s funny to see how any time he gets scratched or bumped, he wants to immediately stop the game and get a band aid. If I see that it’s not a big deal and I tell him to “shake it off,” he gets upset. He really wants that band aid! (And the sympathy that comes with it.) Then, within 5 minutes, he’s back to playing tackle again like nothing happened. That’s exactly what we’re seeing in the market these days when it comes to every tweet, news article, or statement about a new trade tariff… Investors flip out, worried that we’re going to get an all-out trade war that will sink our economy. And then next thing you know, the market is rallying again and doing just fine. (Yes, I just compared Wall Street traders to my 5-year-old son.) We saw this exact thing happen almost every day this week with the markets …Read More »
  • A New Global Debt Crisis Has Begun

    A New Global Debt Crisis Has Begun

    This post A New Global Debt Crisis Has Begun appeared first on Daily Reckoning. Emerging-market debt crises are as predictable as spring rain. They happen every 15–20 years, with a few variations and exceptions. In recent decades, the first crisis in this series was the Latin American debt crisis of 1982–85. The combination of inflation and a commodity price boom in the late 1970s had given a huge boost to economies such as Brazil, Argentina, Chile, Mexico and many others, including countries in Africa. This commodity boom enabled these emerging-market (EM) economies to earn dollar reserves for their exports. (By the way, we didn’t call them “emerging markets” in the 1980s; they were the “Third World” after the Western world and the communist world.) These dollar reserves were soon supplemented with dollar loans from U.S. banks looking to “recycle” petrodollars that the OPEC countries were putting on deposit after the oil price explosion of the 1970s. I worked at Citibank from 1976–1985 during the height of petrodollar recycling and even discussed the process personally with Walter Wriston, Citibank’s legendary CEO. In the 1960s, Wriston invented the negotiable eurodollar CD, which was later critical to funding those EM loans. Wriston is …Read More »
  • The Cheapest $3,000 Stock You’ll Ever Find

    The Cheapest $3,000 Stock You’ll Ever Find

    This post The Cheapest $3,000 Stock You’ll Ever Find appeared first on Daily Reckoning. The supply of homes for sale in the United States is near record lows. This is the hangover from the collapse of the greatest housing bubble in history. The business cycle has prevailed and one extreme has led to another. As intelligent investors, these opportunities are ours to exploit. So today, let’s do just that… Data now shows that the inventory of existing houses for sale has now declined for 36 consecutive months.1 The blue line in the chart below captures a true reflection of how tight the housing market in the U.S. has become. This line represents the number of months of housing supply that the U.S. market has left. Today, that figure is at 3.5 months. That is the lowest it has been in at least one generation. As you would expect, declining housing supplies is bullish for housing prices. The environment is even more bullish for homebuilders who get the benefit of not just rising house prices, but also the need for an acceleration in the rate of home construction. I Love NVR’s Disciplined Use Of Free Cash Flow NVR Inc. (NVR) is …Read More »
  • Markets Confront Shocking Paradox

    Markets Confront Shocking Paradox

    This post Markets Confront Shocking Paradox appeared first on Daily Reckoning. “Can a tightening be considered effective if financial conditions… ease?” Claudio Borio, head of the Bank for International Settlements’ Monetary and Economic Department, here poses a thumping question. The Federal Reserve bumped interest rates 0.25% one week ago today — its seventh rate hike since 2015. The Fed is also hard at the business of quantitative tightening. It has unloaded $112 billion of maturing bonds since it began last October. Over half that $112 billion rolled off since the end of March alone. And yet — and yet — we are reliably informed that U.S. financial conditions are presently the easiest since June 2014. The Chicago outpost of the Federal Reserve operates a gadget called the National Financial Conditions Index. This index, says the Fed: Summarizes different financial indicators and, because [it] measures financial stress, can serve as a barometer of the health of financial markets. The index features three components that track U.S. financial conditions on a weekly basis: Risk Subindex. This looks at volatility and funding risk in the financial sector. Credit Subindex. This looks at measures of credit conditions. Leverage Subindex. This looks at debt. Any …Read More »