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Inflation Monitor – July 2016

Inflation Monitor Summary – Composite Ranking

Inflation Monitor - June 2016 Summary

 

* The Inflation Equilibrium is a quick summary of the whole data series of the inflation monitor. If you don’t like statistics, this is the chart for you.


 

Inflation Monitor – July 2016 – Introduction

“Debt is future consumption brought forward. Once debt is incurred, consumption that might have happened in the future won’t happen, and it should come as absolutely no theoretical surprise that at a certain level of debt, growth and income begin to diminish. That is exactly what we are seeing in the real world, even if those who espouse the reigning economic paradigm (Keynesianism) are still in love with their beautiful theory.”

I hope you had a happy Independence Day. A day that is in remembrance of the US’ independence from Britan. How ironic that only 11 days prior to our independence day, the UK declared its independence from the EU. If you don’t know about the Brexit, you must have been living in the woods for the past month. Everyone has been discussing this monumental vote with varying degrees of opinion as to what it could mean.

I have not wanted to discuss it much prior to the vote, because despite what you hear on TV, no one really knows what will happen. Sure there are plenty of “smart” people who have an opinion about what will happen. Some think the world will end, or we will spiral into WW3, others think it is a great thing for the UK. Let me rain on the parade of all these “smart” people. No one knows what will happen. There are too many variables to count and although there are some very important issues that may come up due to this vote, this has never happened before, so we have no reference point of what could happen.

Many people have some relevant thoughts on the issue, but in terms of what will happen, it is mostly political, so unless you know the minds of all the various politicians involved with the UK, EU, and each individual country, you cannot make a thoughtful prediction as to the outcome.

 

Here are some of the relevant points you should consider.

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2015 Recap: High Yield Bonds, Instability, and Financial Contagion

 
2015 recap

“It’s tough to make predictions, especially about the future.” -Yogi Berra

 

Is this the start of a high yield bond rout that many bond experts have been predicting?

Is the S&P 500 performance this year a good indicator of the overall market?

Will instability in the bond market spread to other asset classes?

What is the blueprint for the next financial crisis?

These are all questions that clients have asked recently and I thought this would be a good chance to discuss these issues as a wrap up of 2015.

Lets start by taking a look at what has happened this year, where we stand today, and try to pass some judgement on what could happen in 2016. Normally I don’t write about “predictions”. Yogi Berra was a wise man. However I think this post is relevant to the nature of the markets and the growing instability that is occurring under the surface.

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38 Images of Investments During the August 2015 Stock Market Crash

 

Investments during the August 2015 Crash

 

Investor Behavior – “You can bury your head in 10q’s and 8k’s and memorize a thousand facts about a company. You can become an expert on a given stock sector and establish relationships with all of the executives who run the show. You can build your own DCF models and outguess the other guessers on earnings estimates and forward guidance. But until you accept that market mood and behavior is as big a factor as the fundamentals, you won’t ever be completely honest with yourself. The E is only half of the PE. No matter how good you are at understanding and predicting the E, you’ve still only got half the story. The P is determined entirely by psychology.”
– (The Reformed Broker)

In August of 2015 the stock markets around the world were once again shocked to see stock indexes drop significantly in a matter of days. The biggest drop happened on Monday August 24th at the opening bell at 9:30am EST.

The total drop in 3 days accounted for 11.7% in the S&P 500 futures. Yes this happened in 3 days.

On Monday the 24th from open to the low of the day the S&P 500 dropped 6.8%. The Dow lost more than 1000 points early in the day.

What did this have to do with earnings? Very little from what I could tell. However, stocks don’t always move based on earnings, or fundamental influences.

So what happened?

I would like to recap those few trading days in August to illustrate a point about markets. They are not always rational, and they move based on more than just fundamental news or earnings.

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My Story: How I Learned About Self Directed IRAs

 

self directed ira

 

Self Directed IRAs are not a widely known or understood area in the investment community. The term is typically used to describe what an IRA is, an Individual Retirement Account, which is self directed by the account owner. Most people know that this type of account can be used to invest in stocks bonds and mutual funds. What is not widely known is that this type of account can also be used to invest in real estate, tax liens, private mortgages, private businesses, medical equipment, horses, gold and silver coins, and more.

Most people who know me have been aware of my interest in investing in alternative assets with a self directed IRA for many years. What they may not be aware of is…

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