“The real problem is that a decade of experimental distortion encouraged unprecedented speculation in every conventional asset class, not to mention fringe speculation in assets detached from any standard of value, including meme stocks, pictures of bored monkeys, and digital Pokémon posing as ‘currency.’ As with every similar episode across history, the unwinding of this bubble in the form of financial crisis is already quietly baked in the cake.”
– Dr. John Hussman, “Central Bankers Wandering in the Woods” September 2023
Today we update Treasury bond and U.S. stock market forward return estimates.
Treasury bond return estimates are very easy. It’s simply the current yield offered by the bonds… assuming the U.S. government doesn’t default of course. Here are the current annualized yields for various maturities: Continue reading “Meme Stocks, Bored Monkey Pictures, Digital Pokémon”
A key to successful long-term investing is to ensure you’re getting compensated for the risk you’re taking on. Otherwise, the inherent risk will occasionally materialize and eat up your returns.
Investors must understand the long-term cash flows of a potential investment and compare those cash flows to the price of the asset to develop a long-term return model. This applies to stocks, real estate or any other asset class. I’ve done that analysis with stocks before, but today we’re talking about real estate.
Then the investor must determine if the projected return adequately compensates for the inherent risks as well as, in the case of real estate, the time and effort required.
With short-term treasury yields now between 4.4% to 5.4%, the hurdle rate for a real estate project is much higher than it’s been over the last fifteen years. After all, we can throw $1,000,000 into short-term government bonds and get over $50,000 per year in safe, effortless income. Continue reading “Current and Potential Real Estate Investors Need to Read This”
We received confirmation yesterday afternoon that the Federal Reserve is pausing rate hikes.
That’s the first FOMC meeting without a rate hike since early last year. In that time the Fed has raised its target Fed Funds Rate ten times from 0% up to it’s current target range of 5% – 5.25% in an effort to fight inflation and take the economy off emergency life support.
Continue reading “Rate Hikes Are On Pause”
We’re over 15 months into this bear market. The S&P 500’s peak close was on January 3rd of last year at $4,796 while it’s recent close is $4,124 for a price decline of about 14% so far (although was down much more than that last year).
So, the question is, are U.S. stocks cheap, or even fairly-valued, yet? Well, let’s see… Continue reading “Are Stocks Cheap Yet (Or Even Fairly-Valued)?”
The yield curve has been a fairly reliable indicator of recessions. But, first, let me clarify what the yield curve is.
The yield curve is simply the annualized yields of various treasuries that mature at different points in time. You can then plot those yields on a chart to visualize the “curve.”
For example, plot the annualized yields for a 3-month treasury on a chart, the 6-month, the 9-month, the 1-year, 2-year, 3-year, 5-year and so on out until the 30-year maturity. Then you connect the dots and it creates a “curve,” much like the sample below. Continue reading “What’s The Yield Curve and Why Does It Matter?”