Headlines

Trump’s re-election campaign is on a crusade against leaks

It was a monumental week for markets with major milestone for stocks, bonds, gold and oil

ICE raids starting Sunday ...

TX Governor orders 1,000 National Guard troops to border

Huawei sues Commerce Department over seized equipment

Traders his week bet on a Fed rate cut in record-setting numbers

Trump deporting illegals at slower pace than Obama ...

Donald Trump: People ‘forgot’ Elizabeth Warren is a ‘fraud’

What if Trump won’t accept 2020 defeat?

Giant explosion rocks largest refinery complex on East Coast, sends gasoline prices higher

Special Prosecutor named in Jussie Smollett case, new charges possible

Trump cuts Obama’s Syrian refugee surge by more than 60 percent

Bitcoins

People with excess cash are in a bit of a quandary about where to park it ... forget about current money-market funds or CDs.

Expecting higher interest rates this coming year due to the Federal Reserve Bank's backing off of its quantitative easing, bonds are really not a very good investment at the moment … higher interest rates mean lower bond prices … often more than wiping out any interest income. 

And although the stock market has done very well over 2013, it is unlikely that it will repeat this feat to the same degree in 2014.
  

The next option is real estate.  However, higher interest rates mean higher mortgage rates … and the Fed should also be reducing its mortgage repurchasing program … both meaning that housing is unlikely to keep on the recovery pace that it has enjoyed recently.  (It still might be the best place to put some excess funds however.)

Another popular speculative investment, commodities, also tend to suffer when interest rates go up because the carrying costs of commodity purchases steal much commodity price-increase benefit.

And sovereign currencies are a very dangerous place to invest because the machinations of the world’s central banks are difficult to predict and fraught with shady dealings. 

Even the fine art market, although showing some spectacular recent sales, overall is not doing very well … see: New York Times Article.

What to do?  There are always bitcoins (see: LA Times Article … just kidding.)

And, the last time I looked, you can’t stuff cash into a Tempurpedic mattress …

Why is the Stock Market Going Up?

Dow Jones Industrial Average

The Dow Jones Industrial Average has just passed the 14,000 mark, yet the U.S. unemployment rate has just today ticked up by 1/10th of 1% and the U.S. economy (as measured by our GNP) shrunk in the fourth quarter of last year by 1/10th of 1%.  What's going on ... isn't this an economic disconnect?  No, I think that the U.S. stock market is presaging the entrance of that red-eyed monster ... increased inflation.  We all know that the Federal Reserve's actions over the last four years ... producing new money until the Mint's printing pressing are overheating (producing over $3 trillion in new money) ... has to bring back inflation.  The nervous question has been, "When?"

Well, all this money sloshing around our economy has to go somewhere.  And it is starting to find its way into hard assets ... into the formally-wretched housing mark, into commodities, and into the stock market.  And it is fleeing the fixed-income market ... corporate debt, municipal bonds, and various U.S. government obligations.  (The yield on ten-year U.S. Treasuries has, over the last few months, increased from 1.42% to now 1.90% and heading north ... reflecting the equivalent decrease in the price for these bonds).

One caveat for investors ... the stock market will go up in an inflationary environment until such time as run-away inflation starts to damage corporate profits ... or looks like it might.  My guess would be that this effect would kick in somewhere around an inflation rate of 6-8% ... so be careful.

Afterward: For some parallel thoughts on this subject see: Powerline Blog