Ed’s Daily Notes for June 30th   5 comments

For the week ahead, don’t expect much. With Friday’s Independence Day Holiday making this a short trading week in the U.S., the only big event will be the monthly U.S. Employment Report on Thursday (moved up a day due to the holiday). Will anyone still be paying attention, or will they be on vacation?

New York Times: Central Bankers, Worried About Bubbles, Rebuke Markets

An organization representing the world’s main central banks warned on Sunday that dangerous new asset bubbles were forming even before the global economy has finished recovering from the last round of financial excess.

Investors, desperate to earn returns when official interest rates are at or near record lows, have been driving up the prices of stocks and other assets with little regard for risk, the Bank for International Settlements in Basel, Switzerland, said in its annual report published on Sunday.

Recovery from the financial crisis that began in 2007 could take several more years, Jaime Caruana, the general manager of the B.I.S., said at the organization’s annual meeting in Basel on Sunday. The recovery could be especially slow in Europe, he said, because debt levels remain high.

“During the boom, resources were misallocated on a huge scale,” Mr. Caruana said, according to a text of his speech, “and it will take time to move them to new and more productive uses.”

The B.I.S. provides financial services to national central banks and also acts as a setting where central bankers can discuss monetary policy and other issues like financial stability or bank regulation. The board of directors includes Janet L. Yellen, chairwoman of the Federal Reserve; Mario Draghi, president of the European Central Bank; and the heads of central banks from Japan, China, India and many other countries.

Read the whole article.

It is amazing to me how the central bankers can worry about asset bubbles, when they are the ones responsible for blowing them.

Regardless, this is a big flashing yellow light to markets and investors. Whether the markets heed the warning remains to be seen.

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Posted June 30, 2014 by edmcgon in Economy, Federal Reserve, News

5 responses to “Ed’s Daily Notes for June 30th

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  1. Early in the year I went to cash, about 10%. I am currently about 8% in cash which is a lot for me because I am usually 100+% invested.

    Looking at S&P: 6 months and up 7%; 12 months and up 20%; and 3 years and up 50%.

    A 10% correct gets us back to Oct./Nov. 2013 market prices. There was a very short time in Feb. where the market was 10% less than today.

    At this time I have to say I am glad my money is in the market and not on the side lines waiting for a correction or in Treasuries, bonds, bank account, CD or a coffee can buried in the back yard.

    • I agree with you. There is always an opportunity whether the market is going up or down. Holding large amounts of cash that earns nothing doesn’t make a lot of sense to me. Holding enough cash to take advantage of an opportunity seems prudent. Other than that, waiting for the market to do what you think it should will not work on a consistent basis.

      • Guys – I do have to disagree. I believe having cash in fist at all times is critical to superior longer term results. That is Warren Buffett’s approach, that is Seth Klarman’s approach. At some point Mr Market will deliver an incredible opportunity and I want to be able to jump in with both feet without using margin or selling established positions. We had a great example last year almost this exact same week, when LINE and BBEP dropped to $20.35 and $14.01 respectively. Now they are $32.35 and $22.12, so gains of over 60% with dividends. I am 22% cash right now. I can be patient and wait for that fat pitch – remember, the adage is investing is like batting where balls and strikes are not called, you can wait at the plate as long as you want.

      • Marshall, we’re on the same page. Depending on the size of your portfolio, the amount of cash you hold for an opportunity will vary. The key is making sure you have cash available when that opportunity arises. My point was sitting on 100% cash waiting for the market to do what you think it should will not work.

    • I agree as well. There is always an opportunity somewhere and somehow. Don’t want to be too much of a broken record but Covered calls have opened a whole dimension for profiitability for me. Next, I need to learn spread trading. All these tools enable you to be far more sucessful with far less risk.

      Knowledge and learned expertise are the key to investment success. Marshall and trader are my mentors. Marshall is unsurpassed in stock picking while trader’s trading processes and mechanics are focused and creative. I continue to learn alot from both.

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