Your Daily Bit of Wall Street Wit & Wisdom

money sheet

h/t shutterstock.com

“Earnings, dividends, book value… none of these really matter for moving the overall stock market. The only 2 fundamentals that matter are:
1. How much money is there?
2. How much does that money want to be invested?
Change either of those, and you move prices.”
— Tom McClellan, @McClellanOsc

Follow the money, the big money, the sovereign money.

Central bank monetary largesse provides liquidity that juices markets.

In the latest reporting period, there was a central bank balance sheet contraction.

That’s a clue.

Best regards,

Steve

 

Your Daily Bit of Wall Street Wit & Wisdom

yield sign

Not this kind of “yield”

“An inverted yield curve isn’t a technical indicator like a moving average.  Rather, it has real world implications.  If you borrow short to lend long, your profit margin is gone.”
— Eddy Elfenbein

You may be hearing talk of the yield curve in the news.  The yield curve is a line that depicts the interest rate of US Treasury debt, of equal credit quality but different maturity, at a set point in time.  The yield curve shows the difference between short-term and long-term interest rates.

A normal yield curve has an upward slope, with short-term rates lower than long-term yields.  That makes sense, as the interest rate should be higher for the uncertainty of events as you go out in time.

An inverted yield curve is one in which long-term yields are lower than near-term yields for debt of the same quality.  This is an unusual condition and is seen as a harbinger of economic weakness.

On Monday, the yield for a 6-month Treasury Bill was 2.49%.  The yield for a 5-year Treasury Bond was 2.21%.

The Treasury rate is known as the “risk-free” rate, because it is based on “the full faith and credit of the United States of America.”

That concept is what the global financial house of cards is built upon.

Best regards,

Steve

Your Daily Bit of Wall Street Wit & Wisdom

Miss Congeniality movie poster

Miss Congeniality movie poster

It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.
— John Maynard Keynes, General Theory of Employment, Interest and Money, 1936

Keynes used an analogy of a fictional beauty contest in a newspaper (picking the six most attractive faces out of a hundred and those selecting the most popular would be eligible for a prize) to describe the actions of rational market participants.

He believed people were pricing shares not based on what they think the value is, but rather on what they think everyone else thinks their value is, or what everybody else would predict the average appraisal of value to be.

While Keynes is referring to professional investors in the early 1900s, a century later, with a wealth of information at nearly all our fingertips, his example is applicable to investors in general.  It seems we’re no longer investing in the best companies, and we’re not even investing in the companies that we think everyone else favors — we’re investing in the companies that we think everyone else thinks are the companies that everyone else likes.

If the market is like a beauty contest, as Keynes’ words suggest, then it’s no wonder this market has people shaking their heads.

Find the beauty in life today.

Best regards,

Steve

 

Your Daily Bit of Wall Street Wit & Wisdom

bonsai tree

Japanese Black Pine, Japanese Friendship Garden, San Diego, h/t niwa.org

“To me, the poor are like Bonsai trees. When you plant the best seed of the tallest tree in a six-inch deep flower pot, you get a perfect replica of the tallest tree, but it is only inches tall. There is nothing wrong with the seed you planted; only the soil-base you provided was inadequate.

Poor people are bonsai people. There is nothing wrong with their seeds. Only society never gave them a base to grow on.”
― Muhammad Yunus, Creating a World Without Poverty: Social Business and the Future of Capitalism

Nobel laureate Muhammad Yunus founded the Grameen Bank and pioneered the concepts of microcredit and microfinance to fight poverty.  Yunus realized that people were not poor because they were stupid or lazy.  They worked long, hard hours, performing complex, physical tasks.  Their growth was stunted, because their financial institutions did not help them widen their economic base.

The poor had no control over capital.  Grameen reversed conventional banking practice by removing the need for collateral and created a banking system based on accountability , mutual trust, creativity and participation.  In his book, Banker to the Poor: Microlending and the Battle Against World Poverty, Yunus wrote,“…it is the ability to control capital that gives people the power to rise out of poverty.”

Eradicating poverty provides a path toward peace.

Bonsai is the ancient Asian art of cultivating trees in trays.  The shallow confines of a small pot prevent the tree’s roots from spreading.  Pruning techniques help bonsai mimic the shape and scale of naturally full size trees.

Enjoy a peaceful weekend!

Best regards,

Steve

Your Daily Bit of Wall Street Wit & Wisdom

Roaring 20s

Actress Betty Field dances the Charleston during a poolside party scene from the 1949 movie The Great Gatsby (Bettman / Getty)

“The financial community is now secure in the knowledge that the most powerful banks in the country stand ready to prevent a recurrence of panic.”
— New York Times, 10/24/1929, h/t John Kenneth Galbraith’s The Great Crash of 1929

This past week’s release of the minutes from the late-January meeting of the Federal Reserve’s policy-making committee reflected a dovish Fed friendly to the markets.

Perhaps overly so.

We shall see.  In any event, keep calm and enjoy your weekend.

Best regards,

Steve

Your Daily Bit of Wall Street Wit & Wisdom

Trump Tariff Man

Trump Tariff Man by Dave Whamond, h/t politicalcartoons.com

“Tariffs on Chinese imports are paid by Americans, not by the Chinese or their government. The President’s tariffs are simply a #tax on American consumers.”
— Tweet by Steve Hanke, Professor of  Economics at Johns Hopkins University, member of the Council of Economic Advisers under President Reagan

With US/China trade and tariff talk in the news, it’s important to understand who actually pays tariffs.

Hint, it’s not who Mr. Trump tweets it is.

Relax and enjoy your weekend!

Best regards,

Steve

Your Daily Bit of Wall Street Wit & Wisdom

Will Rogers

Will Rogers

“They dident [sic] start thinking of the old common fellow till just as they started out on the election tour. The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover was an engineer. He knew that water trickled down. Put it uphill and let it go and it will reach the dryest little spot. But he dident know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night anyhow. But it will at least have passed through the poor fellow’s hands.”
— Will Rogers, 1932

The election tours are starting out and the words of “Oklahoma’s favorite son” follow up on yesterday’s trickle-down theory theme. It seems the great American humorist had a good grasp of economics.

I hope your week gets off to a great start!

Best regards,

Steve

Your Daily Bit of Wall Street Wit & Wisdom

JFK and Galbraith

Galbraith, first at left, US Ambassador to India, 1961 h/t jfklibrary.org

“Trickle-down theory – the less than elegant metaphor that if one feeds the horse enough oats, some will pass through to the road for the sparrows.”

— John Kenneth Galbraith

With tax and economic policy in the news, it’s a good time to recall the famed economist’s apt description of the upper crust’s favored supply-side theory.

Enjoy your Sunday!

Best regards,

Steve