Monetary policy is the mechanism through which the supply of money is controlled by monetary authorities. The goal of almost every monetary authority around the world is stability of prices. If prices are unstable—either too high or, in some circumstances, decreasing—this causes unforeseen and unwanted consequences for the economy as a whole.
Monetary authorities usually enact changes to interest rates for the purpose of changing the demand for money. Monetary policy can be either expanding, when interest rates are lowered and more money is available at a cheaper, or contracting, when interest rates are raised to make money more expensive to slow price increases.
This past weekend, a friend of mine made a statement that there must be a large amount of economic growth coming shortly because of the booming stock market, driven by investor sentiment. As I told him, the two are not necessarily tied together. Over the past few months, we have heard about how economic growth is about to accelerate here in America, and this has helped drive investor sentiment in the stock market higher. However, I think there are many questions that need to be answered before we can assume economic growth will reach escape velocity, and investor sentiment is heavily contaminated with a large addictio ... Read More
What does it take to develop a successful, long-term investment strategy? This is the correct question to ask, rather than asking simply which stock(s) to buy. To be successful over the long term, you need to have a comprehensive investment strategy that takes into account your goals and risk parameters. Having said all of that, at the end of the day, I’m looking for a company that has both an attractive valuation and the ability to increase corporate earnings at a rate above market expectations. One way to develop an investment strategy is to look at the factors driving corporate earnings for a specific industry and individual company. A great example is the automoti ... Read More
I have been in this business a long time, and I believe that the best tactic is to combine as many positive factors as possible in order to have the highest probability of success. There are essentially three main methods to look at; this includes fundamental analysis, technical analysis, and quantitative models. You don’t need every single category of analysis to be completed; you just need enough evidence from all to indicate whether or not a stock or index will move up or down. Obviously, there is no 100% guarantee, only a level of probability. Taking a look at the precious metals market, over the past coup ... Read More
Every day it seems as though the S&P 500 makes a new high. This strong performance over the past year is creating complacency, as more retail investors are piling into the market. However, I would certainly urge caution, especially for any new capital being put to work at these lofty levels. With earnings season upon us, we’ve already seen several sectors in the S&P 500 get hit significantly, especially retail stocks. We keep hearing about resilience among Americans, but consumer sentiment is not as strong as many analysts believe. This is why I wasn’t surprised when retailers disappointed. One of ... Read More
What year is this—1999? Some of you might have been active investors in the bull market during the late 90s, as I was, witnessing the S&P 500 soar during that decade. In fact, the bull market was so strong back then that it created a false sense of confidence, as many people quit their regular jobs to become traders. As we all know, this didn’t last forever and the S&P 500 bull market popped and sold off sharply. Just a couple of days ago, I read an interesting article about how small investors are back, seduced by the bull market, which has resulted in a very strong perfo ... Read More