Personal Economics 101

I guess my portfolio (13% Bond, 70% Stock and 17% Cash) isn't doing to badly, with a YTD return (including dividends) of 3%. About 25% of my stocks are either in, or were, in energy. I sold about half my holdings a few months ago and invested in income producing ETFs.

The Federal Reserve minutes of the May meeting gave investors a pretty clear roadmap for the summer. The minutes, out Wednesday afternoon, painted a picture of an FOMC strongly focused on inflation, with rate hikes of 50 basis points in the June and July meetings. But some members also indicated that price pressures may not be getting worse. Stocks rally: The market appeared to take the minutes as more dovish than hawkish. Half-point hikes were already priced in for the next couple of meetings and there was no mention of 75-basis-point moves that had become the base case for a few Wall Street banks at the end of April. The S&P 500 (SPY) rose about 1% to finish out the session and S&P futures (SPX) are up again this morning. Treasury yields (SHY) (TBT) (TLT) continued to creep lower Friday. Data dependence: "We think that after the July meeting the Fed is likely to become more 'data dependent' with regard to rate hikes, which essentially means that the policy path a

A bond selloff (lower prices means higher yields) is deepening after Monday's (March 21) comments from Jerome Powell, which said the Fed is prepared to act even more aggressively to tackle inflation. The yield on the 10-year Treasury has soared 20 basis points to 2.32% since the remarks, leading to the worst month for the asset class since 2016. Meanwhile, the 2-year Treasury yield broke above 2%, jumping almost 24 bps over the past 24 hours to reach 2.19%, as the yield curve hurtles towards an inversion (or one of the best indicators of a coming recession). Stocks are hanging in there despite the latest comments - closing in positive territory yesterday - while futures linked to the major averages are up another 0.4% Tuesday morning. Quote: "If we determine that we need to tighten beyond common measures of neutral (i.e. an interest rate that neither hinders nor fuels economic growth) and into a more restrictive stance, we will do that," Jerome Powell announced during a s

The stock market scored an amazing comeback this week, initially selling off on the deteriorating Russia-Ukraine situation, then rallying on optimism that the conflict could have only a minimal impact on the U.S. economy.  The S&P 500 closed the week with a 0.8% gain after falling as much as 5.5%, the Nasdaq Composite increased 1.1% after plunging as much as 7%, the Dow Jones nearly broke even after losing 5.3% midweek, and U.S. West Texas crude oil pulled back after briefly topping $100 per barrel.  The turnaround came after President Biden issued targeted sanctions Thursday afternoon that did not affect Russia's oil and gas exports or block Russia's access to the SWIFT financial system, sparking the rebound that continued into Friday.  At the same time, the shock and uncertainty of a war in Europe could discourage the Federal Reserve from being aggressive about hiking interest rates, which had been weighing on stocks before Russia's invasion. Outlook : Western intelli

 A 10 percent drop in any market means that market is in a correction. A drop of 20 percent is normally defined as a bear market.  The Dow Jones Industrial Average (DJIA) is down 5.25% from its high in early January. IWM, which tracks the Russell 2000, is down 16.5% since it's high in 2021. The NASDAQ 100 is down 15% since its high in November 2021. The S&P 500 index is down 5.87%. The drop in prices have been strongest in tech and small caps, with larger cap stocks not reaching correction status quite yet. 

Certain ETFs used covered calls to generate extra income, which are returned to shareholders as dividends. With most of these ETFs, income is the priority; capital gains are secondary. One example of this type of ETF is QYLD , Nasdaq 100 Covered Call ETF. Some, such as QYLG and XYLG, only sell calls on about 50 percent of their holdings in order to increase the possibility of gains. One EFT, NUSI, also write puts, as a hedge against a bear market. (Note: The possibility of gains also increases the risk of losses, so judge accordingly.) If you're looking for income, you should consider one or more of these ETFs. Note that QQQ and SPY, which as pure equity plays, had great returns, but the markets were up last year. This would be different in a down year. Also note that these covered call ETFs are new enough that they have not been tested during a bear market.  Consider that the volume on some ETFs, such as XYLG, has a daily average volume of less than 10,000 shares. This will cause

In early 2020, I answered the following question posed on Quora :  What will be the best investment strategies for late 2019 going into 2020? Here is the answer I wrote, along with comments today as an update for 2022.  I used this strategy in 2021 and my portfolio returned 16.09% for the year. While not as much as the S&P 500 (about 30%), it did yield 5.9% in income, which was my objective, since I'm retired and looking for income).  I don’t really change my strategy, which is long-term. I may change the allocation of my portfolio, based on current events. While you could be in cash 100 percent right now, you would not have any earnings on your investments. In fact, you’d be losing about 2 percent annually due to inflation. So that’s not a very good strategy. (For 2022, this would be closer to 6 percent inflation). While it is probable that there will not be a recession in the next few months, if we created a strategy that assumed the worse, we might miss the opportunities for

In this video Peter Lynch offers 8 investing rules for all beginner investors to follow. They're simple but the hard thing is sticking to them! Peter Lynch is an American investor, mutual fund manager, and philanthropist. As the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, Lynch averaged a 29.2% annual return, consistently more than double the S&P 500 stock market index and making it the best-performing mutual fund in the world. 1. Small investor's have a huge advantage 2. Know what you own 3. Don't invest purely on others opinions 4. Focus on the company behind the stock 5. Don't try to predict the market 6. Study history. Market crashes are great opportunities 7. You have plenty of time 8. You need an edge to make money I highly recommend his book.  From Amazon:  One Up On Wall Street

Note: In the last 30 minutes of trading, the DJIA recovered somewhat, to close at 33,962, or 716 points down.   A sort of panic has set in. As I write this (about 2:20 PM CDT), the DJIA has plunged 900 points.  But that's not even 3 percent. So it's not as extreme as it sounds. In my opinion, markets had gotten ahead of themselves. Prices were too high. But economic indicators have continued showing signs of growth. The Shiller PE ratio is at 37; not an all-time high, but still very high.  While inflation is a concern, investors had that albatross for several months.  Investor (retail) sentiment was at an all-time high. According to some theories, when retail investors get this giddy, it's a sign the market may reverse direction. (In fact, most retail investors are still buying at market highs, and selling at market lows, according to most studies). The energy markets have been beaten down in the last few days. Oil (WTI) futures are down about $10 a barrel in the last five

The bond market created fear this week when interest rates on the 10-Year Treasury Bond unexpectedly dropped. The bond market has historically been a fairly accurate predictor of where the stock market is headed. When bond rates decrease, it’s often a sign of recessionary times ahead. I believe investors were frightened by the bond market’s activity, and this caused a sell-off in the market. But is the bond market telling us we're headed toward Bear Market conditions? No, I think this all boils down to the ongoing unemployment issue—specifically, the labor participation rate. Jobs are there, but they aren't being filled because many unemployed people don’t seem ready to go back to work yet. When companies don't have an adequate labor supply, they typically do not make as much profit. Lower profits translate to lower stock prices—hence the sell-off scare we saw this week. While the recovery is not happening as fast as investors would like, I still think it’s happening and th

Markets were probably a little ahead of themselves anyway. While markets have pulled back from nearly all-time highs (and in some cases, all-time highs), there is no way to tell what will happen (despite some "experts" already speculating about a market "crash".  As you see from this daily chart of the NASDAQ (as of 2:52 PM CDT on July 8), it has a ways to go before getting to correction territory.  In other news, a prolonged drop in U.S. Treasury yields is catching bond and fixed income traders by surprise, as well as other investors in the broader financial markets. The 10-year U.S. Treasury yield dropped below 1.3% on Wednesday, and fell another 7 bps overnight to 1.25%, despite lingering concerns about rising inflation and a gradual removal of Fed stimulus. Treasury yields play an important role in the economy, affecting borrowing costs on everything from mortgages to corporate bonds. While the move has mystified many traders, some are ascribing the reverse to c

By Rida Morwa Seeking Alpha In the last two days, we have seen extreme panic among income investors rushing out of the door and dumping their shares of AT&T (T) after hearing about the announcement of a dividend cut following the AT&T/Discovery transaction. The shares of the company are down by 8% in the past two trading sessions. This panic has created a great buying opportunity, and we explain why. AT&T decided that they would be acquiring Discovery (DISCA) in a "Reverse Morris Trust transaction." Essentially, T will be spinning off WarnerMedia and all of its assets into a new company that will be owned 71% by current shareholders of T and 29% by current DISC shareholders. The market's initial reaction to the merger was broadly positive until panic hit the market about the divided reduction, without looking at the big picture. The Dividend The dividend will be reduced. From the conference call, CEO John Stankey said: The transaction is expected to be tax-fre

January manufacturing remains solidly in expansion, but price pressures continue to ramp up The January Institute for Supply Management (ISM) Manufacturing Index showed manufacturing growth (a reading above 50) decelerated more than anticipated. The index declined to 58.7 from December's downwardly revised 60.5 level, and versus the Bloomberg consensus estimate of a dip to 60.0. This index came off the highest level since early 2018 as new orders and production growth declined but both figures remained north of 60, and employment moved modestly further into expansion territory. Prices remained elevated, rising 4.5 points to 82.1, a level not seen since April 2011, indicating continued supplier pricing power. The ISM said, "The manufacturing economy continued its recovery in January. Survey committee members reported that their companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitize facilities and difficulties in

Yellen calls the regulators (Seeking Alpha) Although the "meme stock" trade continues to unwind , discussions over market volatility continue to ensue. Treasury Secretary Janet Yellen has called a meeting with the SEC, the Federal Reserve Board, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission to address the recent market frenzy involving GameStop (NYSE: GME ) and Robinhood. This comes after the SEC said it was investigating "manipulative trading activity," as well as actions taken to "unduly inhibit the ability to trade certain securities." Fine print: Yellen has requested an ethics waiver to hold the meeting after receiving more than $700,000 in speaking fees from Citadel Advisors, the financial empire run by Ken Griffin. Griffin also runs a hedge fund and controls Citadel Securities, a market maker that executes trades for Robinhood. What could happen? Likely nothing, but if the SEC were to act, it could pursue a seri