GMO Market Commentary: Ignore The “Common Sense”

From GMO via Wells Fargo

“I’ve got plenty of common sense … I just choose to ignore it.”

      – Calvin, from Calvin and Hobbes

By the time the Times Square ball landed, U.S. equity markets had closed the books on one of the best years in recent history. Oecember’s further rise of 2.5% put the capstone on an amazing year for the S&P 500 Index, which finished 2013 up 32.4%. New historic highs on this index were reached routinely throughout the month. Small-cap stocks, as represented by the Russell 2000® Index, added 2% in Oecember to finish the calendar year up a remarkable 38.8%. Yes, you read that correctly: Small-cap stocks rose almost 40% in a single year.

The “common sense” justifications for these dramatic moves are now well documented. The Federal Reserve (Fed) model, which compares earnings yields on the S&P 500 Index (the inverse of price/earnings) with the Treasury yield, clearly signals to load up on stocks. Common sense also tells us that profit margins are at an all-time high, so clearly it’s a good time to be buying stocks. Yellen’s dovish background, common sense tells us, is yet further reason to expect continued loose monetary policy and accommodation. And, finally, common sense dictates that recent upward gross domestic product (GOP) revisions, lower unemployment numbers, and a successful holiday retail season, means that of course it’s time to load up on stocks.

Here’s the problem: We don’t buy the common sense. And so, like the philosopher boy above, we choose to ignore it. We suggest you do the same, but for good reason.

First, the Fed model, while intuitively appealing, is a relative measure. Yes, bond yields are ridiculously and artificially low, so of course earnings yields are going to look attractive on a relative basis. But we’re trying to make money in an absolute sense, not a relative one. What if bonds and stocks are BOTH overpriced? Then what? Oh, and one more inconvenient truth-the Fed Model’s track record of forecasting future returns is actually quite abysmal.

Second, yes, we’ll concede that profit margins are at all-time highs-an undeniable fact. Here’s the problem: Profit margins are reliably mean-reverting, which means that hitting an all-time high is not a cause for celebration but just the opposite-a reason to be afraid.

Third, yes, quantitative easing can continue for some time, maybe even decades. But that isn’t a reason to get excited about stocks. In fact, we believe quite the opposite. What it means is that if that is true (and we don’t believe that it will be), then we’ve got much bigger problems on our hands because stock returns going forward are going to be dismally below what they’ve delivered for the past 150 years of our modern industrial society.

And finally, ah, yes, GOP growth! Too bad GOP growth has historically had zero to mildly negative correlation with stock market returns. In other words, even if GOP growth is resuscitated, even if 2014 turns out better than we thought, so what! Economic growth-across developed countries, across emerging countries, across time-has told us absolutely nothing  about future stock market returns. Sorry to deliver the bad news.

So, we ignore common sense and instead rely upon the unconventional wisdom of, you guessed it, valuation. Rather than load up on stocks, we remain cautious and nervous because, from a valuation perspective, U.S. stocks look downright frothy. And, if the global markets continue to rally into 2014 and beyond, it is more likely that we’ll trim. By the end of November, our official seven-year forecast for the S&P 500 Index was -1.3 (real) and our forecast for small-cap stocks, at 4.5%, is worse than it was during most of 2007. Quality, a large position in the fund, has also seen its forecast come down as it, too, has had quite a nice run. Forecasts for quality are still quite positive, so we’re happy to continue owning these stocks but becoming less happy by day. Outside of the U.S., the only groups that we are somewhat optimistic about are value stocks, particularly in Europe, and emerging equities, which we think are priced to deliver 3.4% annually over the next seven years.


    



via Zero Hedge http://ift.tt/1eVcOO5 Tyler Durden

Guest Post: Africa – China And Japan's Next Battleground?

We have long held that Africa is a crucial region of the world in the near future because there is no more incremental debt capacity at any level: sovereign, household, financial or corporate – in any other region. As we noted previously:

without the ability to create debt out of thin air, be it on a secured or unsecured basis, the ability to “create” growth, at least in the current Keynesian paradigm, goes away with it. Yet there is one place where there is untapped credit creation potential, if not on an unsecured (i.e., future cash flow discounting), then certainly on a secured (hard asset collateral) basis. The place is Africa, and according to some estimates the continent, Africa can create between $5 and $10 trillion in secured debt, using its extensive untapped resources as first-lien collateral.

 

Africa is precisely where the smart money (and those who quietly run the above mentioned “power echelons”), namely China and Goldman Sachs, have refocused all their attention in the past year precisely because they both realize that Africa is the last and only bastion of untapped credit growth and capacity.

Africa in geographical perspective…

 

So it is perhaps unsurprising that China’s current arch-enemy Japan – and its apparently bottomless well of printed money – are taking aim also…

Submitted by Shannon Tiezzi, via The Diplomat,

As tensions between China and Japan multiply, there is an increasing battle for influence in other states. For example, in his recent article in The Diplomat, Jin Kai noted China and Japan’s global media war. There has also been an upswing in more traditional diplomatic wrangling, with Japan seeking to increase its influence in ASEAN as an attempt to reduce China’s sway in the region. With both China and Japan seeking to assert their leadership over the Asia-Pacific, it makes sense that both countries would woo ASEAN. It’s a bit more surprisingly to see China-Japan diplomatic competition supposedly pop up in Africa.

Recently, China’s Foreign Minister Wang Yi and Japan’s Prime Minister Shinzo Abe both visited the African continent. Abe left on January 9 for a week-long tour of the Ivory Coast, Mozambique, and Ethiopia. Meanwhile, Wang was in Africa from January 7 to January 11, visiting Ethiopia, Djibouti, Ghana, and Senegal. Given the current chill in China-Japan relations (and the tendency for both countries to snipe at each other in the media), the two trips quickly morphed into a sign of ‘competition’ over Africa.

Both countries rejected the idea that they were competing. When Chinese Foreign Ministry spokesperson Hua Chunying was asked to comment on the idea that Wang Yi’s visit to Africa “is directed against Japan,” she responded that anyone harboring this idea “is not so acquainted with the past and present of China-Africa relations.” Indeed, as Hua pointed out, it’s traditional for Chinese Foreign Ministers to visit Africa as their first overseas trip of the new year. Hua praised China “sincere and selfless help” for Africa, and warned that trying to stir up a rivalry in Africa is “a wrong decision which is doomed to fail.” This comment was likely directed at Japan, but could just as easily apply to the United States and other countries seeking to increase their influence in Africa.

Japan also denied that Abe’s visit to Africa had anything to do with China. Hiroshige Seko, a deputy chief cabinet secretary, was quoted in an Associated Press article as saying that competing against China is “not our intention at all.” Seko added, “As far as the African nations are concerned, they are important regardless of China.” African countries are important to Japan for the same reason they are to China — a wealth of natural resources as well as ample opportunity for foreign investment. The New York Times pointed out that increasing ties with Africa is just one aspect of Abe’s diplomatic strategy, all of which is designed to support “Abenomics.”

In a speech in Ethiopia, Abe reaffirmed Africa’s importance. “A considerable number of Japanese believe that Africa is the hope for Japan,” he said. His speech focused almost entirely on the potential for a positive relationship between Africans and Japanese companies — including how Japanese management strategies can benefit African people. “When Japanese companies that value each and every individual come to Africa, a win-win relationship in the truest sense can emerge,” Abe said. By contrast, his vision of the Japanese government’s role in Africa seemed like an afterthought. Abe did discuss his wish for more cooperation with the African Union, and offered to increase Japans’ assistance and loans to the continent, but he spent far less time on this point than on extolling the virtues of Japanese businesses.

Japan’s strategy, in other words, is economically focused. It’s clear that Abe’s pursuit of a relationship with Africa is closely connected with Japanese businesses. China, on the other hand, constantly emphasizes the “friendship” between its government and those of African nations. Though Chinese companies do big business in China, Beijing almost never alludes to this fact in its official remarks. When joint projects (such as roads or government buildings) are brought up, these projects are always a sign of China’s friendship towards Africa.

Accordingly, in his speeches Wang Yi focused on the government-to-government relationships between China and  African nations. In Senegal, Wang called for both countries “to firmly support each other’s core interest[s] and major concerns.” In Ghana, he spoke about the need “to promote practical cooperation through strengthening traditional friendship.” China’s relationships with African countries are focused not just on business opportunities (although of course that’s an important aspect) but also on gaining African diplomatic support for China’s policies.

Whereas Abe seems content to have Japanese businesses make profits, China is actively pursuing soft power on the continent. This is nothing new for China. A 2013 study by Gustavo Flores-Macías and Sarah Kreps of Cornell University found that, since the mid-1990s, China has been quite successful at parlaying its trade relationships in Africa and Latin America into tangible foreign policy support. Japan doesn’t seem to be seeking this sort of influence (at least, not yet). Instead, Abe is more openly concerned with increasing economic interactions. While China and Japan may look like they’re competing in Africa, the two countries are actually playing different games.


    



via Zero Hedge http://ift.tt/1dxArxw Tyler Durden

Guest Post: Africa – China And Japan’s Next Battleground?

We have long held that Africa is a crucial region of the world in the near future because there is no more incremental debt capacity at any level: sovereign, household, financial or corporate – in any other region. As we noted previously:

without the ability to create debt out of thin air, be it on a secured or unsecured basis, the ability to “create” growth, at least in the current Keynesian paradigm, goes away with it. Yet there is one place where there is untapped credit creation potential, if not on an unsecured (i.e., future cash flow discounting), then certainly on a secured (hard asset collateral) basis. The place is Africa, and according to some estimates the continent, Africa can create between $5 and $10 trillion in secured debt, using its extensive untapped resources as first-lien collateral.

 

Africa is precisely where the smart money (and those who quietly run the above mentioned “power echelons”), namely China and Goldman Sachs, have refocused all their attention in the past year precisely because they both realize that Africa is the last and only bastion of untapped credit growth and capacity.

Africa in geographical perspective…

 

So it is perhaps unsurprising that China’s current arch-enemy Japan – and its apparently bottomless well of printed money – are taking aim also…

Submitted by Shannon Tiezzi, via The Diplomat,

As tensions between China and Japan multiply, there is an increasing battle for influence in other states. For example, in his recent article in The Diplomat, Jin Kai noted China and Japan’s global media war. There has also been an upswing in more traditional diplomatic wrangling, with Japan seeking to increase its influence in ASEAN as an attempt to reduce China’s sway in the region. With both China and Japan seeking to assert their leadership over the Asia-Pacific, it makes sense that both countries would woo ASEAN. It’s a bit more surprisingly to see China-Japan diplomatic competition supposedly pop up in Africa.

Recently, China’s Foreign Minister Wang Yi and Japan’s Prime Minister Shinzo Abe both visited the African continent. Abe left on January 9 for a week-long tour of the Ivory Coast, Mozambique, and Ethiopia. Meanwhile, Wang was in Africa from January 7 to January 11, visiting Ethiopia, Djibouti, Ghana, and Senegal. Given the current chill in China-Japan relations (and the tendency for both countries to snipe at each other in the media), the two trips quickly morphed into a sign of ‘competition’ over Africa.

Both countries rejected the idea that they were competing. When Chinese Foreign Ministry spokesperson Hua Chunying was asked to comment on the idea that Wang Yi’s visit to Africa “is directed against Japan,” she responded that anyone harboring this idea “is not so acquainted with the past and present of China-Africa relations.” Indeed, as Hua pointed out, it’s traditional for Chinese Foreign Ministers to visit Africa as their first overseas trip of the new year. Hua praised China “sincere and selfless help” for Africa, and warned that trying to stir up a rivalry in Africa is “a wrong decision which is doomed to fail.” This comment was likely directed at Japan, but could just as easily apply to the United States and other countries seeking to increase their influence in Africa.

Japan also denied that Abe’s visit to Africa had anything to do with China. Hiroshige Seko, a deputy chief cabinet secretary, was quoted in an Associated Press article as saying that competing against China is “not our intention at all.” Seko added, “As far as the African nations are concerned, they are important regardless of China.” African countries are important to Japan for the same reason they are to China — a wealth of natural resources as well as ample opportunity for foreign investment. The New York Times pointed out that increasing ties with Africa is just one aspect of Abe’s diplomatic strategy, all of which is designed to support “Abenomics.”

In a speech in Ethiopia, Abe reaffirmed Africa’s importance. “A considerable number of Japanese believe that Africa is the hope for Japan,” he said. His speech focused almost entirely on the potential for a positive relationship between Africans and Japanese companies — including how Japanese management strategies can benefit African people. “When Japanese companies that value each and every individual come to Africa, a win-win relationship in the truest sense can emerge,” Abe said. By contrast, his vision of the Japanese government’s role in Africa seemed like an afterthought. Abe did discuss his wish for more cooperation with the African Union, and offered to increase Japans’ assistance and loans to the continent, but he spent far less time on this point than on extolling the virtues of Japanese businesses.

Japan’s strategy, in other words, is economically focused. It’s clear that Abe’s pursuit of a relationship with Africa is closely connected with Japanese businesses. China, on the other hand, constantly emphasizes the “friendship” between its government and those of African nations. Though Chinese companies do big business in China, Beijing almost never alludes to this fact in its official remarks. When joint projects (such as roads or government buildings) are brought up, these projects are always a sign of China’s friendship towards Africa.

Accordingly, in his speeches Wang Yi focused on the government-to-government relationships between China and  African nations. In Senegal, Wang called for both countries “to firmly support each other’s core interest[s] and major concerns.” In Ghana, he spoke about the need “to promote practical cooperation through strengthening traditional friendship.” China’s relationships with African countries are focused not just on business opportunities (although of course that’s an important aspect) but also on gaining African diplomatic support for China’s policies.

Whereas Abe seems content to have Japanese businesses make profits, China is actively pursuing soft power on the continent. This is nothing new for China. A 2013 study by Gustavo Flores-Macías and Sarah Kreps of Cornell University found that, since the mid-1990s, China has been quite successful at parlaying its trade relationships in Africa and Latin America into tangible foreign policy support. Japan doesn’t seem to be seeking this sort of influence (at least, not yet). Instead, Abe is more openly concerned with increasing economic interactions. While China and Japan may look like they’re competing in Africa, the two countries are actually playing different games.


    



via Zero Hedge http://ift.tt/1dxArxw Tyler Durden

Bernanke's Legacy: A Record $1.3 Trillion In Excess Deposits Over Loans At The "Big 4" Banks

The history books on Bernanke’s legacy have not even been started, and while the euphoria over the Fed’s balance sheet expansion to a ridiculous $4 trillion or about 25% of the US GDP has been well-telegraphed and manifests itself in a record high stock market and a matching record disparity between the haves and the have nots, there is never such a thing as a free lunch… or else the Fed should be crucified for not monetizing all debt since its inception over 100 years ago – just think of all the foregone “wealth effect.” Sarcasm aside, one thing that can be quantified and that few are talking about is the unprecedented, and record, amount of “deposits” held at US commercial banks over loans.

Naturally, these are not deposits in the conventional sense, but merely the balance sheet liability manifestation of the Fed’s excess reserves parked at banks. And as our readers know well by now (here and here) it is these “excess deposits” that the Banks have used to run up risk in various permutations, most notably as the JPM CIO demonstrated, by attempting to corner various markets and other still unknown pathways, using the Fed’s excess liquidity as a source of initial and maintenance margin on synthetic positions.

So how does the record mismatch between deposits and loans look like? Well, for the Big 4 US banks, JPM, Wells, BofA and Citi it looks as follows.

What the above chart simply shows is the breakdown in the Excess Deposit over Loan series, which is shown in the chart below, which tracks the historical change in commercial bank loans and deposits. What is immediately obvious is that while loans and deposits moved hand in hand for most of history, starting with the collapse of Lehman loan creation has been virtually non-existent (total loans are now at levels seen at the time of Lehman’s collapse) while deposits have risen to just about $10 trillion. It is here that the Fed’s excess reserves have gone – the delta between the two is almost precisely the total amount of reserves injected by the Fed since the Lehman crisis.

As for the location of the remainder of the Fed-created excess reserves? Why it is held by none other than foreign banks operating in the US.

So what does all of this mean? In a nutshell, with the Fed now tapering QE and deposit formation slowing, banks will have no choice but to issue loans to offset the lack of outside money injection by the Fed. In other words, while bank “deposits” have already experienced the benefit of “future inflation”, and have manifested it in the stock market, it is now the turn of the matching asset to catch up. Which also means that while “deposit” growth (i.e., parked reserves) in the future will slow to a trickle, banks will have no choice but to flood the country with $2.5 trillion in loans, or a third of the currently outstanding loans, just to catch up to the head start provided by the Fed!

It is this loan creation that will jump start inside money and the flow through to the economy, resulting in the long-overdue growth. It is also this loan creation that means banks will no longer speculate as prop traders with the excess liquidity but go back to their roots as lenders. Most importantly, once banks launch this wholesale lending effort, it is then and only then that the true pernicious inflation from what the Fed has done in the past 5 years will finally rear its ugly head.

Finally, it is then that Bernanke’s legendary statement that he can “contain inflation in 15 minutes” will truly be tested. Which perhaps explains why he can’t wait to be as far away from the Marriner Eccles building as possible when the long-overdue reaction to his actions finally hits. Which is smart: now it is all Yellen responsibility.


    



via Zero Hedge http://ift.tt/1dawmLk Tyler Durden

Bernanke’s Legacy: A Record $1.3 Trillion In Excess Deposits Over Loans At The “Big 4” Banks

The history books on Bernanke’s legacy have not even been started, and while the euphoria over the Fed’s balance sheet expansion to a ridiculous $4 trillion or about 25% of the US GDP has been well-telegraphed and manifests itself in a record high stock market and a matching record disparity between the haves and the have nots, there is never such a thing as a free lunch… or else the Fed should be crucified for not monetizing all debt since its inception over 100 years ago – just think of all the foregone “wealth effect.” Sarcasm aside, one thing that can be quantified and that few are talking about is the unprecedented, and record, amount of “deposits” held at US commercial banks over loans.

Naturally, these are not deposits in the conventional sense, but merely the balance sheet liability manifestation of the Fed’s excess reserves parked at banks. And as our readers know well by now (here and here) it is these “excess deposits” that the Banks have used to run up risk in various permutations, most notably as the JPM CIO demonstrated, by attempting to corner various markets and other still unknown pathways, using the Fed’s excess liquidity as a source of initial and maintenance margin on synthetic positions.

So how does the record mismatch between deposits and loans look like? Well, for the Big 4 US banks, JPM, Wells, BofA and Citi it looks as follows.

What the above chart simply shows is the breakdown in the Excess Deposit over Loan series, which is shown in the chart below, which tracks the historical change in commercial bank loans and deposits. What is immediately obvious is that while loans and deposits moved hand in hand for most of history, starting with the collapse of Lehman loan creation has been virtually non-existent (total loans are now at levels seen at the time of Lehman’s collapse) while deposits have risen to just about $10 trillion. It is here that the Fed’s excess reserves have gone – the delta between the two is almost precisely the total amount of reserves injected by the Fed since the Lehman crisis.

As for the location of the remainder of the Fed-created excess reserves? Why it is held by none other than foreign banks operating in the US.

So what does all of this mean? In a nutshell, with the Fed now tapering QE and deposit formation slowing, banks will have no choice but to issue loans to offset the lack of outside money injection by the Fed. In other words, while bank “deposits” have already experienced the benefit of “future inflation”, and have manifested it in the stock market, it is now the turn of the matching asset to catch up. Which also means that while “deposit” growth (i.e., parked reserves) in the future will slow to a trickle, banks will have no choice but to flood the country with $2.5 trillion in loans, or a third of the currently outstanding loans, just to catch up to the head start provided by the Fed!

It is this loan creation that will jump start inside money and the flow through to the economy, resulting in the long-overdue growth. It is also this loan creation that means banks will no longer speculate as prop traders with the excess liquidity but go back to their roots as lenders. Most importantly, once banks launch this wholesale lending effort, it is then and only then that the true pernicious inflation from what the Fed has done in the past 5 years will finally rear its ugly head.

Finally, it is then that Bernanke’s legendary statement that he can “contain inflation in 15 minutes” will truly be tested. Which perhaps explains why he can’t wait to be as far away from the Marriner Eccles building as possible when the long-overdue reaction to his actions finally hits. Which is smart: now it is all Yellen responsibility.


    



via Zero Hedge http://ift.tt/1dawmLk Tyler Durden

Why China’s Attack on Bitcoin is a Sign of Weakness

For myself and many others back in the 2008/09 period, it seemed obvious what China should to do from an entirely nationalistic perspective on the grand geopolitical chessboard. With the reputation of the U.S. laying in tatters following a gigantic financial collapse and an utterly embarrassing, unlimited taxpayer bailout of the criminals that caused the crisis, the entire world (including Americans) was looking for something else. Something new, something more lawful. Something more just and more stable. The U.S. dollar and the Federal Reserve System had been exposed and entirely discredited in many people’s minds. One of history’s most bold and monumental geopolitical moves was ripe for the taking. China could attempt to back its currency with gold, something I discussed with Max Keiser in a May 2010 interview. Immediately, capital flows would flood into the country, Chinese consumer purchasing power would explode and a rebalancing of their economy would experience a traumatic, but monumental and necessary shift. They could have announced such a plan and then implemented it slowly and with safety nets for manufacturers. It wouldn’t have been easy, but the window of opportunity was open. Instead, they did nothing, and now I think it’s too late.

I think there are two obvious reasons why the Chinese authorities failed to take bold action on the world stage. First, many of the wealthiest billionaires and elites in China have benefited greatly from so-called “free trade” partnerships with the West. The ponzi relationship in which we print pieces of paper and give it to them for manufactured goods has resulted in fabulous fortunes for the Chinese power players. Not to mention their existing personal, social relationships with Western elites. So why rock the boat?

The second reason has to do with the likely political and social turmoil that would have resulted from such a move. The enormous economic rebalancing from such a power play would financially ruin many people during the transition period. Some of them might be locally powerful figures who could then rile up newly unemployed peasants and the conditions for revolution would be ripe. That’s not to say this would be the outcome, but pulling off such a grand move would open up the political situation to such a risk. A risk no one in power was willing to take. So they didn’t.

There is a third possible reason, and that is the U.S. quietly threatened China militarily if they attempted such a move. This is certainly possible as well.

All of these questions were on my mind back on May 2012 when I wrote an article titled: China Better Have a Plan. Here’s a passage from that piece:

The fact that the Central Planners in China are basically standing around like deer in headlights as their economy plunges into the abyss is nothing short of astounding.  Sure they have lowered the bank Reserve Requirement but so what?  That is an epic joke of a move in light of the gargantuan problems that economy is facing, and is blatantly pathetic in its irrelevance.  I’m not going into detail for the thousandth time why China’s economy is nothing more than a Keynesian Centrally Planned house of cards on steroids with mal-investments that make the U.S. housing market look benign.  I have done that too many times over too many years to exert energy on that topic once again.  That said, what I do want to do is look back at the post 2008 period and try to figure out why they never really took polices to rebalance the economy away from fixed asset investment toward consumption.  In fact, not only did they not rebalance but they doubled down on the prior strategy!  Well now the chickens have come home to roost and we are about to find out if China has any real “long term” plan to get themselves out of this mess.

Ultimately, what I think the authorities in China decided to do was let the U.S. hang itself. The Chinese elites didn’t want to be held responsible for the collapse of the U.S. dollar or the world monetary system. So instead, they decided to wait it out, buy gold and prepare to take over on the world stage once the monetary system imploded in on itself. This seemed like a reasonable plan, but they didn’t anticipate one very, very important thing. They didn’t anticipate Bitcoin.

Bitcoin is the monetary equivalent of some genius programmer coming to the global chessboard, picking it up over his or her head and then throwing it on the floor thus scattering the pieces all over the place. This is why I and so many others were shocked that the control-freaks in China were seemingly supportive of it. I believe this was the result of some very forward thinking and brilliant Chinese entrepreneurs seeing the technological achievement for what it is and convincing others of its incredible potential. However, that didn’t last long. Why?

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Americans Still See Government As Their Biggest Problem

While the “economy in general” and “jobs” remain a close second (with the latter rising rapidly despite a plunging – and entirely useless – unemployment rate), Americans polled by Gallup still see the number 1 problem facing the US is “dissatisfation with government; poor leadership and abuse of power.” Compared with a year ago, mentions of government are up slightly; but mentions of healthcare, on the other hand, have quadrupled — from 4% in January 2013 to 16% today!

 

 

As Gallup sums up:

The issues that concern Americans at the start of 2014, and as Obama prepares to deliver the second State of the Union address of his second term, are similar to those Gallup measured in December, and not wildly different from those last January. While the top five issues today also figured prominently in January 2013, their relative positioning has shifted in ways that could affect how Obama frames his message. Concern about unemployment, while up slightly from December, is the same as it was a year ago, and both the economy and problems with government remain top issues. At the same time, concern about healthcare is up, likely resulting from issues with the rollout of the Affordable Care Act.

 

What issues were at the bottom of the list?  Welfare, Immigration and the Wealth Gap.

Ironically, while these issues all ranked so low that they barely made the list of concerns, there are the very issues that are the focus of the current Administration.  Unfortunately, these issues are not the ones currently impeding economic progress, but they are the issues that will garner “votes” come the mid-term elections.

Source: Gallup


    



via Zero Hedge http://ift.tt/1dar96a Tyler Durden

The Great Myth About Big Yields

One of the biggest mistakes investors make when it comes to dividend investing is assuming that BIG dividends= GREAT dividends.

 

Dividends are paid based on cash flow. A company can sometimes pay out a dividend through financial innovation (issuing shares as dividends, etc.), but if you are looking for REAL income from your investments, you NEED the company to be producing CASH.

 

No cash= no dividends= no yield.

 

This is why dividend investing is a tricky business. You cannot simply assume that because a company paid out a big dividend before, that it will continue to do so. You need to assess the stability of its cash flows… as well as its future prospects for growing that cash.

 

After all, you don’t just want the dividend to be constant, you want it to GROW!

 

This is why you should focus on a particular type of dividend paying investments… investments that GROW their dividend consistently over time…

 

Consider Exxon for example.

 

Exxon has increased its dividend for over 30 YEARS. Indeed, if you bought Exxon as late as 2000, you would be collecting a 7-8% yield today based on DIVIDENDS alone (share price in 2000 was roughly $32, and dividends paid in 2013 were roughly $2.50).

 

At the same time, your initial position in Exxon’s stock would have risen 400%!

 

So you’d have made 400% in capital gains… and would continue collecting 7-8% per year in dividends.

 

And the best part is… the dividend keeps growing!

 

This is how you get truly rich from investing. Find investments that are Low Risk Dividend Growers and HOLD ON for the long-term. Less than 1% of mutual funds beat the market… why even bother with them?

 

For a FREE Special Report outlining how to set up your portfolio from this, swing by: http://ift.tt/170oFLH

 

Best Regards

Phoenix Capital Research 

 

 

 


    



via Zero Hedge http://ift.tt/1daraHj Phoenix Capital Research

Chart Of The Day: Goodbye Manufacturing Profits?

There are many hopes and dreams surrounding the massive multiple expansion of 2013 (that Goldman has warned is entirely unsustainable). Top-line growth is already disappointing in the current results season. The bottom-line is going nowhere but faith remains that we are not near ‘peak margins’. While financial engineering (e.g. buybacks) remain possible (though harder in a Fed tapering, rising rate, credit saturated environment) the following chart from Philly Fed data indicates that a ‘belief’ in the margin story is over – as the spread between prices paid and prices received plunges to its lowest since April 2009 (and in line with previous recessionary periods).

 

Profits anyone?

 

And over the past 30 years, this has not been a good sign…

 

Charts: Bloomberg


    



via Zero Hedge http://ift.tt/1dxqoIO Tyler Durden

The Administration's Continually Shifting Standards for Obamacare's Success

Calling Obamacare a success requires defining
standards for what success looks like. In theory, those standards
should be consistent over time.

But as National Journal’s Sam Baker pointed out earlier
this month, the administration has
repeatedly backed off its own success metrics.

Just a few months ago, Health and Human Services Secretary
Kathleen Sebelius said success would entail covering 7 million
people this year. Now, the White House has disowned that standard
for enrollment—and it hasn’t come up with a new one.

President Obama touted HealthCare.gov, the main
portal to shop for coverage, as the “Amazon” or “Expedia” of health
insurance. Now the administration is calling it a win for the site
to be “functional for the vast majority of users,” and even that
standard has been watered down since its debut.

And when the law passed, it was expected to reduce the federal
deficit by about $210 billion over a decade. Now the projected
savings are about half that, largely because one big program proved
unworkable.

In a recent follow-up, Baker
notes that the White House is once again downplaying one of its
goals for the law—the necessity of getting a large-enough number of
young and healthy adults into the exchanges:

White House officials consistently—and accurately—argue that the
most important metric for Obamacare’s success this year is the mix
of young and old enrollees. But they’re backing away from their own
goals for that mix.

Getting young people into the system is critical to holding down
premiums, and therefore to keeping each state’s insurance market
stable. Administration officials previously said their target was
for young adults to make up about 38 percent of Obamacare
enrollees. Now that standard is down to about 30 percent. Or maybe
even 24 percent—where the mix stands now. 

I’d add another item to this list, which is that the law was
supposed to be popular. Before the law passed, Democrats
predicted on multiple occasions that it would quickly become
reasonably well-liked by the public. Then when opposition continued
in the months after passage, Obamacare backers updated their
argument, saying that in 2014 when the law’s biggest benefits
kicked in, the public would shift. But at least so far, that

hasn’t happened. If anything, the law has become less popular
in the last year.

At this point, the White House has backed off so many of its own
definitions of success that it’s not clear what would constitute a
failure. The administration seems to be defining Obamacare success
if it continues to exist.

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