Feb. 8, ’15 – WEEKEND UPDATE – SLIGHT SELL OFF ON BROAD & WALL

On the Securities Action of Friday, February 6, 2015

“WEEKEND UPDATE- SLIGHT SELL OFF ON BROAD & WALL”

SLIGHT SELL OFF ON WALL STREET. Friday saw most major U.S. stock indices decline by about -0.30%.  However for the week, the DJIA gained +3.84%, the S&P500 gained +3.03%, and the S&PMidCap400 gained +2.91%.  The indices finally got themselves into positive territory for the YTD figures as well.  On Friday, volatility, as measured by the VIX increased by +0.44 points or +2.61% to 17.29. See the graphic below for daily and weekly performance of the U.S. Major Stock Indices.  In fixed income Friday, Treasuries traded lower, as did high yield Sovereigns, while high yield corporates rallied.  See the graphic below to see how fixed income faired Friday.  I continue to believe the major U.S. stock indices will soon plow through previous all time highs, by three to four percent, before taking a few steps back, before making another advance higher.  I continue to remain bullish, and I believe energy shares and crude oil will trade in a volatile range, but will trade higher given a month or two or more, which I believe will lift all major U.S. Stock Indices to new highs.  Lastly, I think that higher energy prices will bring “hot” (meaning higher than usual) CPI-U monthly figures, which will put upward pressure on fixed income yields in the open market, particularly in the Treasury long term and intermediate maturity sectors.  The average monthly CPI monthly increase has been approximately +0.2%, since oil’s “demise” it’s been quite low, closer to zero, if not negative month to month.  As energy prices (primarily light sweet crude oil) rebounds, I’d expect the monthly CPI-U figures to come in “hot” at nearly twice to three times the historical average, at literally +0.4% to +0.6% month to month for a while.  Treasuries are just off prices of nearly unprecedented highs, due to unprecedented low yields.  Thirty year zeros are down by -8.61% off their all time highs, which I believe they’ll never see again, or at least, for many many years.  Conventional thirty year Treasury bonds are down by -5.44% off of their peak.  Long term (and intermediate) treasury yields have no where to go but upwards, which will bring Treasury prices down further, due to higher yields.  High yield fixed income is not at unprecedented low yields, and therefore, may not sell off as strongly as Treasuries, given equal maturities.  Higher or “hot” CPI-U monthly figures could also put pressure on the FOMC to raise rates, perhaps as early as this summer.  Higher yields at the short end (raised by the Federal Reserve) are likely to push rates up across the board.  I wouldn’t be surprised if long term Treasury Securities saw negative total returns over the next 36 months.  I believe, long term maturity Treasury bond investors (and perhaps intermediate Treasury note investors) are in for a big surprise(!!!), called negative total returns over the next three years, as rates begin to “normalize” in the USA.  I believe investors will be totally shocked at how much can be lost in a Treasury bond as rates increase.  If rates rise by 200 basis points at the long end, there could literally be 30% losses for Treasury bond investors.   Additionally, there could be nearly literally 60% losses for 30 year Zeroes in the Treasury Bond market.  Interest rate risk is measured by duration.  Swim at your own risk!

Feb. 6, 2015, Major U.S. Stock Indices

[http://finance.yahoo.com/futures Click here for an energy prices update] Friday saw USO an etf of West Texas Intermediate increase by +2.31% to 19.47; USO is now -50.61% off its peak of the past 12 months; reached in late June ’14;  USO is also +19.45% off rock bottom, set on January 29th at 16.68.  I believe oil will remain very volatile, perhaps an options strategy called an at-the-money straddle using two week out expirations could prove to be very lucrative; I believe oil is going a lot higher (maybe another 10% or more), and soon (over the next few weeks).  I would base this estimate of mine on the oil-VIX which is extremely high right now.  If the oil-VIX implodes, it will bring higher oil prices. On Friday light sweet crude oil traded higher by +3.68% or 1.86 per barrel to $52.34.  Higher oil likely sent the Russian stock market (as measured by the etf RSX) up by +3.29% to 16.34; RSX now stands -40.50% off its peak of the past 12 months.  [Click here for an Oil-VIX chart & update]

PE Multiples & Yields of Major U.S. Stock Indices, Feb. 6, 2015

As you can see the PE Multiple of the DJIA is just 16.78, it was 15.08 last year; The dividend yield of the DJIA is 2.45%, and it was 2.49% last year.  The 30 year Treasury bond yield is 2.52%,and the ten year Treasury note yield is 1.94%.  Therefore, it’s difficult to be bearish on the equities markets with a stock market with a lot of potential to go higher.  [Click here for Yields on Treasury Securities, http://finance.yahoo.com/quotes/^IRX,^FVX,^TNX,^TYX]

Select Quotes of Interest, Feb. 6, 2015

In the Fixed income markets, see the graphic above to see how Treasury etfs traded (ZROZ, TLT, IEF, TIP) and how high yield etfs traded (U.S. dollar denominated high yield sovereigns being etfs EMB and PCY) (as well as high yield corporate fixed income being etfs HYG, JNK, and QLTC).  The 30 year Treasury Bond yield closed at 2.51%, and the 10 year Treasury Note yield closed at 1.95% [Data from here: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield]. I continue to believe, and will reiterate, that if oil can stabilize in a trading range, or start to appreciate, that there will be some major opportunities in the energy sector in equities, and in their high yield fixed income; Also I continue to believe that when oil stabilizes (or begins to appreciate) that there will be some major opportunities in high yield fixed income funds, such as the ones listed above, EMB, PCY, HYG, JNK, and QLTC.  When higher energy prices materialize in the future, inflation could pick up as measured by the CPI-U, which may or could send e.g. Treasury Security yields higher, while also pressuring the FOMC to raise rates at the short end.

Friday saw the US Dollar trade lower versus the Ruble, but significantly higher versus the Euro; The Euro lost approximately -1.47%, as measured by the etf FXE.  I continue to believe the Ruble and the Euro are still too high, and will further deteriorate, making the dollar stronger. The U.S. Dollar can now be exchanged for a Euro at a cost of approximately $1.1315, and also can now be exchanged for 66.5245 Rubles, which is about -0.25 Rubles less than yesterday’s exchange rate.  [http://finance.yahoo.com/currency-investing  Click here for an update on all major cross rates.]

I believe the catalysts for today’s stock market declines were higher oil and in-line labor market figures, which indicated a very strong labor market.  A stronger economy means that the Federal Reserve may raise rates sooner rather than later.  This threw cold water on the markets mid-day, turning slight gains to slight losses by the closing bell;  Higher oil prices lifted the energy sector;  Lastly, shares in Greece lost ground as pessimism increased.  Consequently, an etf of Greek stocks (etf ticker GREK) declined by -4.59% to 11.85.

 

Above is a summary graphic of the weeks economic data releases.

[Click here for updates on Futures vs. Fair value, http://www.cnbc.com/id/17689937]. 

Monday before the opening bell and after the opening bell will not see too many hype stocks report eps.  HOT and Z will both report eps Tuesday after the close.  I believe that Z could move about ±6.80 per share after it reports its eps, it closed Friday at 100.65.

I would suggest that perhaps a long bull call ratio back spread with net credit characteristics may be lucrative; Especially if also combined with a long bear put ratio back spread with net credit characteristics on any particular “hype stock” just before eps are released; Placing the trade just a minute or two before the close (3:00PM Central Time) on its earnings release date (if it reports that day after the close, or the next morning before the opening bell).  It certainly is amusing to see what happens to hype stocks just after their eps releases in the aftermarkets and on the first full day of trading post eps.  Most sink fast!  

“Hype stocks” to me would be e.g. GOOGL, TSLA, PCLN, FB, AAPL, LNKD, AMZN, EBAY, NFLX, TWTR, BABA, GPRO, and Z, and also what I would describe as “Big Momentum Players” such as e.g. CMG, GMCR, AZO, V, and MA etc. (a sub group of hype to me).  This list of Hype and Big Momentum Players is just off the top of my head, and is in no particular order, nor is it any particular science for choosing these types of volatile securities.  RSX, GREK, TUR, FXI, EWZ, and CUBA are also very volatile etfs found in places worldwide with high geopolitical risks.  West Texas Intermediate matched by the etf USO is also a very volatile etf to trade as of late.

I will continue to reiterate that I’m currently bullish on the major U.S. stock indices.  I believe a theme of higher crude oil prices will potentially materialize over the next few weeks, if not becoming more of a longer term theme, for the next year, if not longer.  I also believe and would reiterate that the geopolitical risks involving Greece’s sovereign debt and interest payments will be resolved, and also that Russia may stop sabre rattling soon.  This will bring about higher prices for stocks, and for all major U.S. stock indices, which could reach new all time highs very soon.  I also think that investors may begin selling longer duration and longer maturity fixed income of all kinds, and with the proceeds they may purchase stocks, resulting in higher yields on fixed income, and also higher stock prices.  Higher energy prices may bring about higher monthly CPI-U inflation figures, resulting in a fixed income sell off, and higher interest rates, over the next 6 to 12 months, if not for the next 36 months.  Interestingly, I believe that the higher credit quality fixed income may sell off more than the lower credit quality fixed income.  I would base this upon the unprecedented sovereign yields worldwide and in the USA.  To me, this means that Treasuries at the long end, may suffer great losses as rates “normalize.”  For 2015 I am most bullish on equities and the S&PMidCap400, the S&P500, as well as the DJIA. The DJIA has the lowest PE Multiple among all the major U.S. Indices currently.  I am also bullish on Financials, REITs (particularly Hospital REITs such as HCP, HCN, SBRA, OHI, NHI), and the “Big Tobacco” (e.g MO, PM, RAI, BTI, etc.) sectors;  In fixed income I like high yield etfs e.g. EMB, PCY, JNK, HYG, and QLTC.  Options can be used to “hedge” fixed income ETFs as well, in strategies such as level one covered call writing (of e.g. at-the-money monthly calls).  I’d likely trade deep in the money calls on stock indices, combined with very high allocations to high yield fixed income.  If the JPM EMBI (matched by etf ticker: EMB) is good enough for the fixed income of the Yale and Harvard Endowment funds (and other large time institutional entities) then why trade Treasury Securities?  I think people (or any entity) who buy Treasuries are “ripping themselves off!”  Treasuries to me, generally speaking are for short term investing, and maximum preservation of capital.  All high yield fixed income indices (which are BB rated) have, over the long run, always closed at a new all time high every 18 rolling month period.  Consequently, every or any time that high yield fixed income indices are trading well off their all time highs, I’d view it as a major buying opportunity!  Happy Trading!

By Andrew G. Bernhardt

Weekend Update and On The Securities Action of Friday, January 30, 2015

Weekend Update

And On The Securities Action of Friday, January 30, 2015

BIG SELLOFF ON WALL STREET! Friday was a tough day for equities at Nassau & Wall, Stocks slumped mostly in the final 30 minutes of action. The VIX surged +11.78% or +2.21 points to close at 20.97. The S&P500 was down for most of the trading day, but reached an intra-day bottom around 11am central time, before reversing and rallying back to unchanged; it then actually registered a slight advance into positive territory for a short time, before reversing again, and selling off hard in the final 30 minutes. Sovereign fixed income rallied, while high yield corporate fixed income sold off. On Friday the DJIA fell -251 points or -1.45% to 17,164.95. The S&P500 was down -26.26 points or -1.30% to 1,994.99. The S&PMidCap400 fell -20.25 points or -1.39% to close at 1,435.10. For the week most major U.S. Stock indices shed two to three percentage points, except the S&PMidCap400 which traded down -1.42% for the week. Despite Friday’s action, I’m still bullish and believe stock prices will go higher.

Jan. 30, 2015, Major U.S. Stock Indices

The DJIA is now -5.18% off its highest point reached in the past 12 months, the S&P500 is -4.71% of its 12 month peak, the S&PMidCap400 is -2.92% off its 12 month peak, the Nasdaq Composite is -3.73% off its 12 month peak, and the Russell 2000 is now -4.59% of its 12 month peak, the Wilshire 5000 is now -4.29% off its peak. XLF, an etf basket of financials, was -1.62% to 23.01, and now stands 8.47% off its peak reached in the past 12 months. Despite today’s bearishness, the highly telegraphed in advance global slowdown, and Russia’s turmoil, I remain optimistic, and I don’t see any real reason to panic.

Quotes of Interest

It’s hard to be bearish on the DJIA when the PE Multiple is so low at 16.35 when compared to the other indices, additionally its dividend yield has increased in the past 12 months and is substantially higher than the other indices.

USO (oil) traded sharply higher +6.83% to close at 17.82, XLE was up +0.87% to 75.55, RSX was down -1.28% to 14.62, CUBA was +2.75%% to 8.96. I believe that oil will trade sharply higher and lower, but I believe it may have reached rock bottom on January 29th. [http://finance.yahoo.com/futures]

In the Fixed income markets, ZROZ traded higher, up +2.89% to 138.99, TLT traded up +1.77% to 138.28, IEF traded higher by +0.88% to 110.55, TIP was up +0.72% to 115.63. EMB was up +0.09% to 111.76, PCY was up +0.14% to 28.78, HYG was down -.28% to 90.23, JNK was down -0.21% to 38.94, and QLTC traded down by -0.88% to 48.57. The 30 year Treasury yield settled at 2.25%, the 10 year Treasury yield settled at 1.68% [data from here: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield]. I continue to believe, and will reiterate, that if oil can ever find rock bottom, and/or stabilize in a trading range, or start to appreciate, that there will be some major opportunities in the energy sector in equities, and in their high yield fixed income; Also I believe that when oil stabilizes (or begins to appreciate) that there will be some major opportunities in high yield fixed income funds, such as the ones listed above, EMB, PCY, HYG, JNK, and QLTC.  Lastly, with the current yield on the DJIA at 2.54%, and the 30 year Treasury bond yield at 2.25%, it’s difficult to be bearish on equities.  Everyone knows rates are going to eventually go higher; But what is everyone going to do next, sell bonds and purchase stocks?!  Imagine that when it develops when rates begin to rise.  Perhaps they’ll (investors will) “sell everything”?  Below I have obtained some historical noteworthy data from the Federal Reserve Economic Data research center website, which plots the effective yield of high yield fixed income.

The US Dollar traded slightly lower versus the Euro on Friday, the Euro gained approximately +0.20%, to 1.1285. I continue to believe the Ruble and the Euro are still too high, and will further deteriorate, making the dollar stronger. Check up on current cross rates here: http://finance.yahoo.com/currency-investing/majors. Russia roiled the markets by reducing its key interest rate from 17% to 15%; This sparked a Ruble sell off, the U.S. Dollar can now purchase 69.65 Rubles. QE is nearly everywhere now, which may bode well for equities globally this year.

I believe the catalysts for today’s stock market selloff were the economic data releases, Russia’s spur of the moment rate reduction, and worried on Greece’s debt and its ability to pay interest on its sovereigns fixed income. U.S. Economic data releases were all quite good, except GDP, which came in weaker than was expected, at +2.6% for the quarter, when economists were widely expecting 3.2%. For highlights on the GDP report (1 page) click here: [http://www.bea.gov/newsreleases/national/gdp/2015/pdf/gdp4q14_adv_fax.pdf]; For the full 17 page report click here: [http://www.bea.gov/newsreleases/national/gdp/2015/pdf/gdp4q14_adv.pdf]. Economists speculate that the trade deficit, which widened, due to a strong dollar, creating an environment of fewer exports, and more imports, scraped a full percentage point off of this quarter’s advance GDP figure. The chain deflator (a measure of inflation/deflation) came in at 0.00, consensus was for +1.0%, and the Employment Cost Index came in at +0.6% while economists were expecting an increase of +0.3% to +0.5%. The Chicago PMI came in at 59.4 while expectations were for 57.5 to 58.0. Lastly, Michigan Consumer Sentiment came in at 98.1, expectations were for 97.5 to 98.2.  Below I’ve obtained a nice trade deficit chart.  I’d expect with a strengthening dollar the trade deficit will increase.

Next week, I believe economic data releases will likely be dominated by the labor force figures due on the 6^th. Economists are expecting unemployment to hold steady at 5.6%. I believe there’s risk that figure could come in better than expected. Also next week newsworthy reports will be Monday’s Personal Income and Outlays, PMI Manufacturing index, ISM Manufacturing Index, and Construction spending. Tuesday, Motor Vehicle Sales and Factory Orders are due for release. Wednesday, the ADP Employment Report is due, as is ISM Non- Manufacturing Index, and the EIA Petroleum Status Report. Thursday, International Trade, and Jobless Claims, as well as Productivity and Costs are due.

In notable eps reports due next week, I think CMG will be amusing, as will WYNN, both eps are reports due after the market close on Tuesday the 3rd. On the 4^th after the close YUM and GMCR both report their eps, GMCR expectations are always quite high; It’s hype. Thursday the 5^th will see CME and TWTR eps both after the close, TWTR will surely be surrounded by hype, if I had to guess. Surely, these reports will be entertaining.

I remain bullish still on equities, for 2015; I do fear that we could have another day or two of selling before we get liftoff again though. I continue to believe (as I’ve said earlier) that the stronger dollar and weakening oil prices will bode well for consumer sentiment and for consumer spending, which is the largest component of GDP. I think also a strengthening U.S. dollar, weaker inflation (aka disflation), and a weakening global economic outlook will result in the Federal Reserve raising rates at the earliest this summer, if not delaying further, possibly until early 2016.

In other news, there were stunning eps reports at MA and V; while CVX beat expectations but saw its eps decline by -38%. MSFT is now down roughly -19.28% off it’s peak reached in the past 12 months, it was down by another -3.83% on Friday alone.  Also MCD was down on Friday by -0.89% and is now -10.93% off its peak reached at some point in the last year. The new MCD president said that they’re bringing back their old “I’m Lovin’ it!” slogan.  The new CEO of MCD also said that for a limited time, 1% of customers in select restaurants will get their food for free, if they publically display an act of love; e.g. a child hugging their parents. Before you know it the Federal Trade Commission in a joint effort with the Department of Justice will be investigating MCD for price discrimination and/or fraud! CVX traded lower by -0.46%, and is now -24% off its peak reached in the past 12 months.  The entire energy sector has been slaughtered, as CNBC’s Jim Cramer would say. GOOGL missed its 7.11 eps target, but rallied strongly Friday(!!), trading up by +24.32 or +4.74% to 537.55 per share, I had speculated that it might move roughly 22 dollars higher or lower in an earlier blog post; and I suggested that perhaps (for educational purposes) a bull call ratio back spread with net credit characteristics may be lucrative (when and if also combined with a bear put ratio back spread with net credit characteristics).  Happy earnings speculation!  GOOGL now stands -12.60% off its peak of the past 52 weeks. Lastly, AMZN handily beat its eps forecasts, and traded higher by +44.75 per share or +13.71% to 354.53.

Yesterday Bill Gross wrote on what he described as the anemic recovery in the USA, see the chart below. I brought up the point that yes, it may be a weak GDP rebound recovery, compared to previous recoveries. While the GDP recovery and growth rates have not been so strong, relative to the past’s recovery rates, the stock market performance has been very strong since early March of 2009; A lot stronger than prior recoveries! We won’t likely see +200% (or greater) returns in equities over any six year period again, anytime soon in the United States. 200% in six years annualizes to +20.09%!!! Yes that’s right, +20.09% for six years in a row on average! Derived from 3^(1/6). Still I don’t believe that equities are overvalued, they’re reasonable on a PE multiple basis. The alternative of U.S. Treasuries (and other high credit quality sovereigns) at exceptionally low yields (or even negative yields elsewhere in sovereigns worldwide) is the conundrum we find ourselves in today.

It’s time for the 2015 Super Bowl, XLIX of the New England Patriots vs. the Seattle Seahawks. Stay tuned for the commercials! They’re priced this year at 30 seconds for $4,500,000; which is $150k per second. Thirty second ads were priced at $3.8 million in 2013, and $4 million in 2014. That’s a lot of money for those intangible airwaves!

The markets are making me a little jittery here, it’s been a tough week or two for equities.  My crystal ball tells me, if Greece can get its act together, and if Russia will stop saber rattling, then the markets would have nowhere to go but higher.  Eventually, with oil at such depressed prices, Russia will not be able to afford its military fiascoes against its neighbors, so the end of Russia’s foolishness is near.  In the meantime the political and financial market instability (the geopolitical risk) in that region of the world will be stomach churning.  The VIX in my view doesn’t have much higher to go, if at all higher, I couldn’t or don’t really see it breaking 25, or especially 30.  If it gets through 30, all bets are off, and I’d expect a 10% correction (or worse) would have occurred, or would surely be in the cards.  Still if that’s in our future, I’d expect some major buying opportunities.  Longer term, I’m bullish.  I think the USA is not going to have a recession for at least another year or two, if not further away into the distant future.  Full steam ahead.

By Andrew G. Bernhardt

2:35amCT, Thursday, January 22, 2015 On Interest Rates, Inflation, Money Creation, Savings & Investment, and GDP Growth

On Interest Rates, Inflation, Money Creation, Savings & Investment, and GDP Growth.

Inflation is in the best interest of the government because it erodes the real value of the government’s debt; and also it is in the best interest of the people (and of the government) because it stimulates spending (supporting wages, productivity, and growth, and earnings), because people are more likely to spend during inflationary times versus deflationary times, when they hoard money, waiting for later and waiting for cheaper goods & services.  Stimulating spending is good for everyone.  Additionally, higher inflation, controlled around 2 to 4, or even 5 percent, is also conducive to savings & investment, because normally interest rates are greater than inflation, which is great for lenders and creditors.  Real returns on capital and on investment is what investors should be striving to achieve.  Therefore, the central banks of the world, and the U.S. Treasury and Federal Reserve should in my mind, “print money,” (or electronically create it, and then spend it) by increasing the amount of M1, M2, and of the M3.  The governments should spend the created money to stimulate GDP growth.  In my mind, the government should stop borrowing constantly as much as it does, and instead, it should create more money (that otherwise would have been borrowed), in an effort to create e.g. approximately +3.88% inflation.  I also believe a little inflation is in the best interest of investors, shareholders, corporations, and incorporated businesses.  This is because large capitalization stocks, and mid-caps (likely small caps as well), they can over time capture the newly created dollars, which may help to support EPS growth rates.  In other words if there’s 3.88% inflation, the EPS growth of approximately +3.88 should be fairly easy, and thus e.g. EPS growth of say 7.88 percent would really be a real increase of EPS 4%.  In other words, slight inflation is a giveaway to EPS growth, great for investors, it stimulates spending, GDP growth, higher interest rates, and is conducive to savings & investment, it also decreases the liabilities owed by the government by diminishing the real value of the debt and interest due (it does the same for the private sector and their debts).

I probably sound “pro-inflation” here which is in my mind sometimes irresponsible, I obviously don’t like high rates of inflation, I like about 3.88% annual inflation.  I’m not promoting the government policy of creating hyper-inflation.  I am simply totally against deflation, and I’m against very low inflation rates as well, as inflation can create easy EPS growth for companies in which people are shareholders.  As a nation, I believe we should strive for less inflation than our competitor nations, to help strengthen our currency (as high inflation can lead to a depreciating currency), but it shouldn’t be paralyzing low either.  Super high inflation rates of e.g. education and health care in the USA are completely and utterly irresponsible to me, and I’m not sure what the solution is, but people should boycott industries that charge obscenely higher and higher prices, while continuously increasing prices like there’s no tomorrow (e.g. sustained annual tuition hikes that are literally sometimes three times higher than the CPI’s annual percentage increase, aka that are three times higher than the inflation rate, are utterly absurd to me).  “Crazy” price hikes (of e.g. increasing prices significantly higher than the inflation rates annually) constantly in any industry should be investigated in my mind for price fixing, price manipulation, price discrimination, and for violations of the Robinson-Patman Act, The Clayton Act, and the Sherman Anti-Trust Act; and also for price gauging.  It simply should not be tolerated.  Coffee also at “guess where” probably should not cost $8 to $12 dollars anywhere on this earth, that would be price gauging, aka ripping people off.  Industries that inflate their prices at extremely high rates, e.g. three times the inflation rate, are nearly in my mind committing fraud, and their EPS growth would be equal to at least their obscene price hikes, this fuels excessively high returns for shareholders, while “squeezing” the consumers (I’d call it price gauging and price manipulation, etc.).

Deflation to me is mismanagement of money creation, and when and if it happens, the printing press (of a nation’s central bank) needs to be utilized to bring about +0.2% inflation per month, on average.  Deflation can also be a symptom or direct result of poor legislation of e.g. commodity margin leverage regulations, e.g. if rules are made more stringent and investors can’t borrow as much as before to invest in CFTC regulated commodities and currencies, then deflation will or certainly could show its face.   Deflation is obviously paralyzing to the economy worldwide, it should be prevented with vigilance by our nation’s U.S. Treasury and Federal Reserve (by our monetary policy and by our legislature).  Governmental stimulus programmes of purchasing its own government bonds, helps to lessen the blow from crowding out investment and borrowing, and injects money directly into the economy, but it leads to lower and lower interest rates (perhaps leading to less savings and investment).  We need to raise inflation rates and raise interest rates, which might actually increase consumer spending, consumer sentiment, and spur savings and investment, and increase GDP growth.  Zero interest rate policies worldwide are not conducive to savings and investment, and is not fair to lenders and creditors.  If you’ve borrowed any money, it’s now time to refinance, with rates nearly at all time lows.

There are my current thoughts in a nutshell.

By Andrew G. Bernhardt