This was a most unusual week for an investor. At the end is some information on Palm Sunday. This newsletter will cover 3 topics: earnings, health reform, and interest rates.
Corporate earnings continue to come in stronger than anticipated. By a ratio of about 4 to 1, corporations reported positive earnings above projection compared to missing an earning projection. This is very bullish for the stock market as the ratio is normally not this high. Given that this year the manufacturing and service sectors continue to grow this period of better than anticipated earnings should continue for the next quarter.
The heath reform legislation was signed on Tuesday. The stock market responded by remaining relatively flat. A reaction was seen in the bond market as investors sold long term treasury bonds on Wednesday and Thursday resulting in higher interest rates. On Friday, long term interest rates started going back down. These interest rates went up because of a belief of higher interest rates associated with a higher debt level. On Friday, interest rates reversed course as no suitable alternatives exist.
The short term impact of the health reform legislation is very minimal. Now many people are on the news are stating doom and gloom. Please ignore these people and relax from an investing perspective.
Palm Sunday
Palm Sunday is the sixth Sunday of Lent and the last Sunday before Easter. It is also known as Passion Sunday, Willow Sunday, and Flower Sunday.
Palm Sunday commemorates the triumphal entry of Jesus into Jerusalem, where he would be crucified five days later. According to the Gospels, Jesus rode into town on a donkey as exuberant crowds hailed him as the Messiah and spread out palm branches and cloaks in his path.
The event commemorated on Palm Sunday is told in all four gospels (Matthew 21, Mark 11, Luke 19, John 12). The Matthew narrative, the one most commonly read in services on Palm Sunday.
Sunday, March 28, 2010
Sunday, March 21, 2010
Health Care Reform and Investing
This newsletter will be relatively short and covers the impact of health care reform legislation and investment strategy. First an update on performance of investments using the current investment strategy for an economy that is stabile and preparing to grow. CONGRATULATIONS, all of the accounts are doing very well, growing nicely. At the end are some health care facts for your enjoyment.
If the health care reform legislation passes today will it alter my investment strategy? While this is very important for numerous reasons and may impact us in the future, it will not change the current investment strategy. The reason is that the impact of the legislation will occur with time such that it will not significantly alter the performance of the economy. The most important thing to do is to understand the legislation and the impact on a personal level.
US Health Care Facts
• The United States is the only industrialized country in the world without a universal health insurance system.
• Half of all bankruptcies are caused by medical bills. Three-quarters of those filings are people with health insurance.
• U.S. health care spending is approximately $2 trillion per year, or $6,697 per person. The United States continues to spend significantly more on health care than other countries in the world.
• Administrative costs account for 31 percent of all health care expenditures in the United States. The average overhead for U.S. private health insurers is 11.7 percent; for Medicare, it is 3.6 percent; for Canada’s national health insurance program, it is 1.3 percent.
• A baby born in El Salvador has a better chance of surviving than a baby in Detroit.
The infant mortality rate in Detroit is 15.5, compared to El Salvador's rate of 9.7.
• Canadians live three years longer on average than we do.
• There are four times as many health care lobbyists in Washington as there are members of Congress.
• Ninety percent of Americans believe the American health care system needs fundamental changes or needs to be completely rebuilt.
If the health care reform legislation passes today will it alter my investment strategy? While this is very important for numerous reasons and may impact us in the future, it will not change the current investment strategy. The reason is that the impact of the legislation will occur with time such that it will not significantly alter the performance of the economy. The most important thing to do is to understand the legislation and the impact on a personal level.
US Health Care Facts
• The United States is the only industrialized country in the world without a universal health insurance system.
• Half of all bankruptcies are caused by medical bills. Three-quarters of those filings are people with health insurance.
• U.S. health care spending is approximately $2 trillion per year, or $6,697 per person. The United States continues to spend significantly more on health care than other countries in the world.
• Administrative costs account for 31 percent of all health care expenditures in the United States. The average overhead for U.S. private health insurers is 11.7 percent; for Medicare, it is 3.6 percent; for Canada’s national health insurance program, it is 1.3 percent.
• A baby born in El Salvador has a better chance of surviving than a baby in Detroit.
The infant mortality rate in Detroit is 15.5, compared to El Salvador's rate of 9.7.
• Canadians live three years longer on average than we do.
• There are four times as many health care lobbyists in Washington as there are members of Congress.
• Ninety percent of Americans believe the American health care system needs fundamental changes or needs to be completely rebuilt.
Sunday, March 14, 2010
Economic Business Cycle - Winter
I hope you remembered to spring forward your clocks. This is the last of 4 newsletters correlating the economic business cycle to winter. The previous newsletters discussed when the economy is: stabilizing known as spring, growing knows as summer, and stalling known as fall. This newletter covers when the economy is shrinking known as winter. At the end are some winter facts for your enjoyment.
When the economy is shrinking it is called a recession or depression. Some experts claimed a few years ago that the Federal Reserve was so powerful that this part of the economic business cycle could be avoided such that a recession or depression would never happen again. We have seen that these expers are wrong. A typical business cycle lasts between 5 - 8 years.
So what causes the economy to shrink? The Federal Reserve to achieve a 3% growth rate and consumers. Above a 3% rate, inflation is the concern and they put the brakes on the economy through monetary policy. You read about the Federal Reserve attempting to achieve a soft landing. A high inflation rate is very detrimental to us, remember the late 1970's and early 1980's, having a 20% interest rate is an ugly thing.
Us consumers make spending decisions based on how we view the economy and the future. When economic uncertainty exists, consumers stop spending as much and save more, a normal reaction. While the Fed can control monetary policy, they certainly can not control how people think. So the change in how us consumers think causes the economy to slow even further. The Fed moves rate relatively slowly in an attempt to keep consumers spending at a normal rate. While the Federal Reserve is powerful, it is not nearly as powerful as 200 - 300 million consumers.
How do we invest in this economic winter? Since the economy is shrinking and interest rates are falling, a few options exist. We want to avoid the stock market since stock price grow as the economy grows and shrink as the economy shrinks so the stock market is going to go down. We want to own money market funds for a low risk investor and take advantage of the higher interest rates and long term bonds for higher risk investors. Long term bonds that do not pay a coupon can yield a risk taking investor a good return.
What is the bottom line of these 4 newsletters on weather? You need to understand economic business cycles, where the economy is within the cycle, and how to invest for the future. An investment strategy based upon what happened in the past yields very poor results.
Our economy is in a season of stability known as spring. This winter part of this economic business cycle will come and is a few years away. Relax, when it does come you know how to profit from it.
WINTER FACTS
The probability of a white Christmas in Vancouver, British Columbia, Canada is approximately the same as for Washington, DC: 13 percent.
Johannes Kepler published perhaps the first scientific reference to snow crystals in a short treatise entitled On the Six-Cornered Snowflake in 1611.
According to meteorologist Vincent Shaefer, an estimated half million ice crystals are required to cover a one square foot (929 square centimetres) area with snow to a depth of ten inches (25 cm).
Herds of caribou in Canada's north can generate their own weather. Ice fog will form around the herd on especially cold days from the moisture exhaled by the animals.
A large avalanche in North America might release 300,000 cubic yards (230,000 cubic metres) of snow. That's the equivalent of 20 American football fields filled 10 feet (3.05 m) deep with snow.
Snowflakes falling at the rate of 3.6 to 6.4 km/hr (2-4 mph) can take about one hour to fall to the ground.
When the economy is shrinking it is called a recession or depression. Some experts claimed a few years ago that the Federal Reserve was so powerful that this part of the economic business cycle could be avoided such that a recession or depression would never happen again. We have seen that these expers are wrong. A typical business cycle lasts between 5 - 8 years.
So what causes the economy to shrink? The Federal Reserve to achieve a 3% growth rate and consumers. Above a 3% rate, inflation is the concern and they put the brakes on the economy through monetary policy. You read about the Federal Reserve attempting to achieve a soft landing. A high inflation rate is very detrimental to us, remember the late 1970's and early 1980's, having a 20% interest rate is an ugly thing.
Us consumers make spending decisions based on how we view the economy and the future. When economic uncertainty exists, consumers stop spending as much and save more, a normal reaction. While the Fed can control monetary policy, they certainly can not control how people think. So the change in how us consumers think causes the economy to slow even further. The Fed moves rate relatively slowly in an attempt to keep consumers spending at a normal rate. While the Federal Reserve is powerful, it is not nearly as powerful as 200 - 300 million consumers.
How do we invest in this economic winter? Since the economy is shrinking and interest rates are falling, a few options exist. We want to avoid the stock market since stock price grow as the economy grows and shrink as the economy shrinks so the stock market is going to go down. We want to own money market funds for a low risk investor and take advantage of the higher interest rates and long term bonds for higher risk investors. Long term bonds that do not pay a coupon can yield a risk taking investor a good return.
What is the bottom line of these 4 newsletters on weather? You need to understand economic business cycles, where the economy is within the cycle, and how to invest for the future. An investment strategy based upon what happened in the past yields very poor results.
Our economy is in a season of stability known as spring. This winter part of this economic business cycle will come and is a few years away. Relax, when it does come you know how to profit from it.
WINTER FACTS
The probability of a white Christmas in Vancouver, British Columbia, Canada is approximately the same as for Washington, DC: 13 percent.
Johannes Kepler published perhaps the first scientific reference to snow crystals in a short treatise entitled On the Six-Cornered Snowflake in 1611.
According to meteorologist Vincent Shaefer, an estimated half million ice crystals are required to cover a one square foot (929 square centimetres) area with snow to a depth of ten inches (25 cm).
Herds of caribou in Canada's north can generate their own weather. Ice fog will form around the herd on especially cold days from the moisture exhaled by the animals.
A large avalanche in North America might release 300,000 cubic yards (230,000 cubic metres) of snow. That's the equivalent of 20 American football fields filled 10 feet (3.05 m) deep with snow.
Snowflakes falling at the rate of 3.6 to 6.4 km/hr (2-4 mph) can take about one hour to fall to the ground.
Saturday, March 6, 2010
Economic Business Cycle - Autumn
The economic news this week, including the jobs data, showed that the economy is stable and starting to show signs of growth. This newsletter is the 3rd in a series correlating economic business cycles and weather cycles. When the economy is stable after a decline it correlates to spring, when it is growing it correlates to summer, and when the economy stops growing it correlates to autumn. At the end of the newsletter are some autumn weather facts.
If the economy is growing what causes it to stop growing? The answer is the Federal Reserve and the control of monetary policy. It is the policy of the Fed to have 3% economic growth. The problem with this policy is that it is impossible to accomplish it.
When growth is below 3%, the Fed spurs growth with low interest rates and adds money into the economy to get the economy to grow. It is impossible to get exactly 3%, and inevitably the economy grows faster than 3%. To get it back to 3% the Fed raises rates and withdraws money from the economy because of an inflationary concern. Our economy is very diverse and is hard to regulate growth because people spend money based upon their feeling of the future.
So what are the signs of the autumn phase of the business cycle? The Fed says that they are concerned about fighting inflation. Interest rates are above 3%, the Fed has been raising them for awhile and autumn begins when interest rates are high and the Fed stops raising them. The treasury yield curve goes from increasing to flat. People will be looking at how great stocks have done in the past and will start rushing to buy them.
When autumn hits in the economic business cycle, ABORT ABORT ABORT. This means get out of the stock market and get ready for the roller coaster ride down. Do Not Follow The Crowd!!!!!
Right now our economy is stable and we are in the spring phase of the economic business cycle. The autumn phase will come a few years from now.
AUTUMN FACTS:
The Great Galveston Hurricane of 1900 killed more Americans than the Johnstown Flood , San Francisco Earthquake, and Chicago Fire combined.
A polar air mass moving out of the Arctic across the Mississippi River Basin may evaporate more than nine times the water flowing out of the river mouth in Louisiana.
Only three years in recorded history have not seen tropical storm occurred in the Atlantic Ocean during August: 1941, 1961 and 1997.
If the economy is growing what causes it to stop growing? The answer is the Federal Reserve and the control of monetary policy. It is the policy of the Fed to have 3% economic growth. The problem with this policy is that it is impossible to accomplish it.
When growth is below 3%, the Fed spurs growth with low interest rates and adds money into the economy to get the economy to grow. It is impossible to get exactly 3%, and inevitably the economy grows faster than 3%. To get it back to 3% the Fed raises rates and withdraws money from the economy because of an inflationary concern. Our economy is very diverse and is hard to regulate growth because people spend money based upon their feeling of the future.
So what are the signs of the autumn phase of the business cycle? The Fed says that they are concerned about fighting inflation. Interest rates are above 3%, the Fed has been raising them for awhile and autumn begins when interest rates are high and the Fed stops raising them. The treasury yield curve goes from increasing to flat. People will be looking at how great stocks have done in the past and will start rushing to buy them.
When autumn hits in the economic business cycle, ABORT ABORT ABORT. This means get out of the stock market and get ready for the roller coaster ride down. Do Not Follow The Crowd!!!!!
Right now our economy is stable and we are in the spring phase of the economic business cycle. The autumn phase will come a few years from now.
AUTUMN FACTS:
The Great Galveston Hurricane of 1900 killed more Americans than the Johnstown Flood , San Francisco Earthquake, and Chicago Fire combined.
A polar air mass moving out of the Arctic across the Mississippi River Basin may evaporate more than nine times the water flowing out of the river mouth in Louisiana.
Only three years in recorded history have not seen tropical storm occurred in the Atlantic Ocean during August: 1941, 1961 and 1997.
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