- - Page 5 of 12 The Finance Gourmet

Vacation Almost Over

June 20, 2018 by Finance Gourmet

Wow. What a crazy time to be on vacation. Let’s see… The Fed raised interest rates. There was a bit of hiccup regarding that. In my humble opinion, this is the last “freebie” interest rate hike the Fed has in its quiver. In other words, this interest rate hike probably doesn’t have the possibility of tanking the economy. But, the next one might be a different story. If the Fed pulls the trigger on the next hike too quickly, that could be the one that pops the whole economic expansion and heads us into the next recession. If you are a conspiracy theorist, it’s too late to affect the mid-term elections, but a series of ill-timed rate hikes toward the end of this year, and into the next drops the economy into recession just in time for the next Presidential election. That’s pretty far fetched, that they would do it on purpose, but it could happen nonetheless. (I like that nonetheless is one word 🙂 Also, a trade war! Again. Not just with China this time, but with Europe and Canada?!? Actually, there are a few glitches in our trade with Canada, but this taking a club to some pealing …

Another Euro Crisis?

May 30, 2018 by Finance Gourmet

Hold on to your lug nuts. It’s going to be a bumpy ride! Italy Euro Politics Once upon a time, politicians in a given country disagreed about things. Those things were mostly domestic, although there has always been some foreign policy issues as well. What they didn’t used to do, was just throw out wholesale changes to the entire structure of the economy based upon a single election in which one side won 51% to 49%, or whatever. After the Brexit vote, all bets seem to be off in the world of political market stability. Which brings us to Italy. It seems that within Italian politics there are those who are what they call “Euro-skeptics”, which basically means that they aren’t in favor of the Euro and/or are not in favor of all the rules they must follow to be part of the Euro. Essentially, when the Euro was setup, everyone was very keen on all of the benefits a single European currency would drive. And, why not? There are many, many benefits. As with most things, however, there are some responsibilities too. This is because with a single currency not only are the benefits shared, but so are any …

Trump’s Trade War

April 3, 2018 by Finance Gourmet

Donald Trump launched a trade war –on purpose– by attaching large American import tariffs on steel and aluminum. These tariffs might have worked a decade or two ago, when both Republican and Democratic administrations were happy to watch American manufacturing gallop out of the country to cheaper producers, but these days, there aren’t many American steel mills and aluminum plants to protect. Still, based on Trump’s limited understanding of the economy and global trade, the tariffs make sense because American producers have been harmed by noncompetitive government subsides and subsequent dumping. Lost on Trump is that his own companies used cheaper, imported Chinese steel in most of his buildings. Trade Wars Have Casualties Trump’s oft cited target for unfair trade practices is China, although the steel and aluminum tariffs are hardly surgical strikes against the Chinese, impacting numerous other countries as well, including America’s trade, strategic, and global allies. Nonetheless, as far as Trump understands the economy these industries represent real, American manufacturing lost to “cheating” foreign competitors. When presented with the possibility of retaliation, Trump and his flunkies suggest that America can win any trade war. This is 100% true. No country can defeat America in a trade war IF the country …

Is Inflation Real Finally?

February 16, 2018 by Finance Gourmet

The Fed has been raising interest rates over the last few years based on fears of inflation that never seemed to come to pass. But, with monetary policy still very loose, and investors in a good mood pushing the stock market higher and higher (with a few days of correction last week), the rising rates seemed to have no real effect on the economy. Unfortunately, this is the way economic policy works. Nothing happens, until it does, and then you have to hope that you already got it right. Inflation in January The 12-month rate for wholesale inflation rose to 2.7% for January. That’s a pretty big number, and it’s the first one that actually suggests the Fed’s long feared inflation might actually be real. Before the data came out, the markets (and the Federal Reserve’s dot plot) anticipated three rates hikes in 2018. The current rate is 1.5%, and assuming the Fed follows it’s recent history by raising rates a quarter-percent (0.25%) each time, that means that interest rates would end the year at 2.25%. That’s hardly high, historically speaking, but definately higher than anything this market has seen in a long time. Add-in the fact that the Fed …

December Rate Hike (Again)

December 11, 2017 by Finance Gourmet

The Fed has now completely given up the pretense that it’s interest rate increases have anything to do with its 2% inflation target. Now, it is about tightening up the financial conditions, and in particular trying to put the breaks on the stock market. As noted over at Market Watch Reinhart said current policy is not dissimilar to the steady quarter-point rate hikes seen from 2004-2006. The only thing missing is the phrase “measured pace,” he said. Beginning in the summer of 2004, the Fed raised its short-term rate target from 1.25% to 5.25% in 17 straight quarter-point moves. But the policy failed to trigger tighter financial conditions, Harris noted. And, this is what should be terrifying. From 2004 to 2006, the Fed insisted on raising rates right into what would become the Great Recession. By raising rates when there is no inflation, the Fed becomes a really powerful group of market timers who have decided the stock market (this time, the real estate market last time) is “too high.” Ironically, this all becomes a self-fulfilling prophecy. When the Fed’s interest rate hikes finally do get the attention of Wall Street, it comes in the form of a knife slashing …

Stock Market Rising More

October 24, 2017 by Finance Gourmet

Anyone out there with their “the stock market is doomed” predictions acknowledging how much money they would have cost you if you had listened to them and gotten out of the markets in the last several months, or even the last year or two? No? Didn’t think so. It looks like the doomsdayers will have to wait a little bit longer as U.S. companies such as Caterpillar and 3M both reported pretty solid earnings this week driving up the stock market further. It’s a little hard to claim that there is no basis for increasing stock prices when stocks are actually doing well. Give it a week or two. Once earnings season has passed they’ll be back to tell you about how overbought, overvalued, and over-hyped the market is. How Long Will Stocks Keep Rising I don’t know how much longer the stock market will keep going up, and neither does anyone else. That’s why money mangers are always careful to compare themselves to the stock market, and not to their own predictions or track record of being right. Imagine how much more responsible financial analysis might be if you had to publish not only your trading record versus a …

Return of High Risk Mortgages

September 5, 2017 by Finance Gourmet

There was a recent article over at CNBC about high-risk mortgages and their resurgence, sometimes at the hands of the very same players who offered them before the big banking crisis and subsequent recession of 07-08. Of course, it’s easy to wring your hands and worry, “Here we go again,” but before you do that, take a closer look. High-Risk Mortgages Are Not “Bad” There is nothing wrong with a high-risk mortgage. Just like a no credit credit card, a high-risk mortgage has a greater chance of defaulting than one given to lower risk borrowers. However, that isn’t inherently a bad thing. On a macro level, the credit markets work a lot like the insurance markets. Take life insurance, for example. Some people are going to die, and you are going to pay out on those policies. However, as long as the premiums you take in from everyone exceed the amounts you pay out, the company profits. Everybody wins. Similarly, with high-risk home mortgages, you know some people are going to default. Again, as long as your portfolio of mortgages collects more payments than you lose through defaults, you win. This is how the entire bond market works. Risk is fine, …

Inflation Disappears (Again)

August 11, 2017August 11, 2017 by Finance Gourmet

Update: Yea! It looks like I was right, and everyone has come around. It’s August now, and it looks like those low inflation numbers were neither an aberration, nor temporary. There simply is no inflation, the job market, while full, is not hot, and there is no need to raise rates the rest of 2017, so say we all 🙂 The Fed has been working to raise interest rates because of the specter of inflation. However, with the exception of energy prices, there really hasn’t been much in the way of inflation. As a result, the Fed keeps explaining that they think that all those reports of low inflation were temporary. That all took a bit of knock today as the U.S. Government reported that inflation in June was zero. That’s right, zero, as in no inflation (again). And that comes after the actual 0.1% drop in inflation in May. This is of course, a far cry from the Fed’s so-called target of 2.0% inflation, and calling two months in a row of data temporary starts to look like ignoring data, so the tone has changed. A lot hinges on the July report. Check out my Credit Sesame review. Fed …

Mortgage Rates Climbing

July 13, 2017 by Finance Gourmet

Mortgage rates have ticked up in the this month. Despite stories saying that rates have “jumped” the rise has been rather tepid, and still hasn’t taken rates back to their post election highs in the 4.25% range. Rates had peaked back in January when some analysts still suspected that Crazy Trump was all an act and that the newly elected President would settle into the office as a regular business-friendly, regulation-busting, Republican. However, the Russia scandal has plagued the administration and health care has twice stalled out, pushing any pro-business legislation off. As a result, rates have basically trended eastbound and down, if you will. Do Mortgage Rates Really Matter? It’s always dangerous to say, “This time it is different,” in the world of finance. Such sentiments are typically used to justify things that should not be justified. However, is the world really different this time around with regards to mortgage interest rates? Consider that rates are still historically low, and that they will continue to be so long as they stay below the 5.0% to 5.5% range. A full percentage point is several Fed interest rate hikes away (a year… two?), or an economy that shakes off its slow …

What Interest Rate Hikes Mean for Young People

June 20, 2017 by Finance Gourmet

I got an email excitedly saying that I should be explaining how interest rate increases will affected younger investors and the personal finances of young people. I didn’t really think that was necessary, but it keeps popping up elsewhere with even more breathless writing copy, so it’s time for a real recipe for Federal Reserve interest rate hikes. Interest Rates and Young People Let’s start from the beginning. Neither interest rates, nor money, nor investments, care how old you are. It all works the same for every age. That being said, it is true that interest rates have been so low, for so long, that anyone under 35 probably has never experienced higher interest rates. So, let’s go over what higher rates are like. History of Interest Rates First, remember that while the Fed has raised interest rates several times since December 2016, they have all been small 0.25% interest rate hikes. The current rate is 1.25% (technically, the Fed sets a range of 1.0% to 1.25%, but for graphing purposes, you’ll see 1.25%.) This is not remotely “high.” In the 1980s, the Fed Funds rate was an astounding 18% to 20%, as they tried to reign in inflation, and …