Dow Jones Sess Stunning 10% Recovery, But This One Key Factor Could Fuel Even More Growth

Since January 3, within a one-month span, the Dow Jones Industrial Average has recovered from 22,682 points to 25,102 points, by more than 10 percent.

It has been a stunning 30 days for the Dow Jones, which was at risk of entering a bear market after falling by 19 percent from its all-time high.

The short-term recovery of the Dow was mainly attributed to the Federal Reserve rate, which is expected to remain stable in the range of 2.25 percent to 2.5 percent.

But, another key factor may have largely affected the sentiment around the U.S. stock market throughout the past 48 hours.

Jobs, Jobs, Jobs: U.S. Shutdown Has Minimal Impact as Dow Jones Recovers Off of It

A Reuters report revealed that contrary to the expectations of investors, the shutdown of the U.S. government last month had minimal impact on jobs.

Throughout the 34-day period, more than 800,000 federal workers missed two paychecks, which account for around 0.5 percent of the workforce of the U.S.

Although the unemployment rate of the U.S. increased to 4 percent as a result of the shutdown, the Labor Department said it had no “discernible” effect on job growth.

Most major industries recorded a rise in job growth from December to January.

  • Employment in construction rose by 52,000 in January
  • Employment in manufacturing increased by 13,000 in January, following a 20,000 increase in December
  • 8,000 federal workers were hired by the government in January

Job growth rose In industries including healthcare, finance, and transportation as well, eliminating the concerns of investors that the shutdown could slow down the recovery of the U.S. Stock market.

With job growth strengthening and increasing at a gradual pace and the Federal Reserve vowing to remain patient on rate hikes, the stock market is expected to sustain its momentum throughout the short-term.

Another Variable: U.S.-China Trade War, Trump Remains Positive

Earlier this week, the U.S. government filed more than 20 charges against Chinese telecom and electronics giant Huawei, fueling the tension between the U.S. and China.

The South China Morning Post reported that the trade talks had been overshadowed by the Huawei indictments, which analysts foresee could lead to a substantial fine for the Chinese company.

A professor at the National University of Singapore David De Cremer said:

“It is likely that Huawei will receive a very big fine. Such a decision would communicate to allies of the U.S. to join in this battle and push Huawei out of their markets.”

If the indictments lead to an export ban on Huawei, local analysts in China said that it could have a major impact on both Huawei and its partners.

Crucially, it could heavily affect the “Made in China 2025” roadmap set forth by the government of China that may alter the outcome of the trade talks.

Jia Mo, a Shanghai-based analyst, told SCMP:

“Imposing an export ban on Huawei will inevitably have a tremendous impact, whether for Huawei or for its business partners in the US.”

Analysts emphasized that the Huawei case has added another uncertainty to the trade discussions between the U.S. and China.

IDC Asia-Pacific vice president Simon Piff added:

“Whether [the Huawei indictments] are due to security concerns, business concerns or political concerns are now so blurred it is difficult to tell what the outcome would be.”

But, U.S. President Donald Trump has said that the meeting is going well with good intent from both sides despite the Huawei dispute, which could serve as a catalyst for the short-term growth of the U.S. economy.

If the job growth is sustained throughout the first quarter of 2019 and the Federal Reserve maintains its rate in the 2.25 to 2.5 percent range, the U.S. stock market could aim for a full-fledged recovery from its December downturn.


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Author: Joseph Young 
Image Credit: Featured Image from Shutterstock

Kashkari: Federal Reserve Doesn’t Need to Protect Investors

Another Federal Reserve president has spoken out on interest rates. Neel Kashkari says there is no need for interest rate hikes right now but that the US Federal Reserve does not exist to protect investors.

Though the stock markets are exhibiting “nervousness,” says Kashkari, investors have to figure out what to do next.

We are not here to protect investors from losses. This is a capitalistic economy we live in and if investors take risks, they should bear the consequences of those risks.

But, says the Minneapolis Federal Reserve chief:

We pay attention to the stock market.

No Reason to Apply Economic Brakes

Kashkari, echoing Atlanta Federal Reserve President Raphael Bostic’s recent comments, believes it’s time to stop interest rate hikes:

I don’t see any reason that we need to tap the brakes pre-emptively on the economy, let’s let the job market continue to strengthen and wages and inflation pick up and we can always raise rates then.

Bostic said last week that, amidst uncertainty:

The appropriate response is to be patient in adjusting the stance of policy and to wait for greater clarity about the direction of the economy and the risks to the outlook.

After a slew of interest rate hikes in 2017 and 2018 and a declining equities markets at the end of 2018, the US Federal Reserve took the pressure off the markets early this January. Federal Reserve Chair Jerome Powell said:

We will be patient as we watch to see how the economy evolves.

The markets responded, with five days of consecutive gains.

S&P 500 (Blue) Dow Jones Industrial Average (Red) and Nasdaq (Yellow) Performance Over the Last Year | Source: Trading View

Federal Reserve United and Independent

Federal Reserve Vice Chairman Richard Clarida has since said the Federal Reserve could be “very patient.”

Kashkari’s comments on investors come in defense of US President Donald Trump’s attacks on the central bank. He says the Federal Reserve is “united” in its independence and focus on data.

Federal Reserve Chair Powell knocked back Trump’s criticisms as the market struggled in late 2018, saying he would not resign. The Federal Reserve is an independent body, and despite Trump’s comments, he cannot fire Powell or force him to quit.

With further interest rate hikes in the near future now very unlikely, investors appear more confident despite other concerns. The Dow Jones Industrial Average ended the day up 141 points or 0.59%.


Source
Author: Melanie Kramer  
Image Credit:  Featured Image from Flickr/ProPublica

Don’t Be Your Own Worst Enemy When Investing

Looking for someone to blame for the not-so-stellar performance of your investment portfolio? Try checking the mirror.

 

Decisions about money aren’t always rational, even when we think we’re acting logically. Common tendencies that make us our own worst enemies when investing include: selling winning investments too soon or holding onto losers for too long, loading up on too-similar assets or failing to assess the future implications of today’s decisions.

Researchers have found dozens of unconscious biases that can drive people to make money decisions they later regret. These behavioral economics concepts include things like “anchoring” — when a specific and perhaps arbitrary number you have in mind sways your decision-making, such as selling Apple just because the company’s stock hit a round number, like $200 a share. Or, the “endowment effect” can cause you to overvalue something simply because you own it, leading you to cling to a stock that’s tanking.

Here are some common human errors in investing, with strategies to overcome them.

Pursuing past predilections

Financial institutions remind us that past performance doesn’t guarantee future results. We don’t always listen.

It’s tempting to look at a stock’s (or the broader market’s) recent performance and conclude gains will persist in the near term, says Victor Ricciardi, a finance professor at Goucher College and co-editor of the books “Investor Behavior” and “Financial Behavior.” “People take a very small sample of data and draw a major conclusion, and that’s a pretty bad pitfall,” Ricciardi says.

How to overcome it: Don’t base investing decisions solely on what’s happened in the past; think about what will drive gains in the future. When investing for the long term, prioritize selecting companies with solid long-term potential.

Diversification that’s not diverse

You may interpret diversification to mean more is better. That’s only half the story; what’s important is owning a variety of assets (both stocks and bonds) with exposure to various industries, companies and geographies.

Sometimes investors exhibit “naive diversification” by owning too-similar assets, which does little to reduce risk, says Dan Egan, director of behavioral finance and investments at robo-advisor Betterment: “People will have three or four different S&P 500 funds and think they’re diversified but don’t look at how correlated they all are.”

Similarly, many investors invest only in companies they know, which results in over-concentration in certain industries, Ricciardi says. That may mean underexposure to “the unknown” — like international stocks — which they perceive to be risky, he adds.

How to overcome it: Invest in a wide range of assets. This can easily be accomplished with a simple portfolio constructed of just a few mutual funds or exchange-traded funds.

Making emotional decisions

When money’s on the line, it’s hard not to let emotions creep into your decisions.

Prior to the 2016 presidential election, many professional investors expressed concerns about a market slump if Donald Trump won. Betterment data suggested that investors who supported Hillary Clinton might let politics shape their investment strategy — and cash out following the election, Egan says. So after the election, the robo-advisor messaged investors with information about the importance of staying invested for the long haul, he says.

On a stock-specific basis, we often let emotions dictate when to sell — not wanting to admit we made a losing bet. “People tend to sell winners too quickly when they go up and, on the downside, they hold on to losing investments too long,” Ricciardi says.

How to overcome it: Think about individual investments in the context of your entire portfolio and craft a plan for when you’ll sell that’s not triggered by short-term factors (like emotions) alone.

Focusing on today

It can be difficult to see the value of saving money for tomorrow when there’s so much to spend it on today. That myopia can make investors either too active or too passive.

If you’re too passive, you may avoid regular check-ins on financial health and stick with a status quo that doesn’t properly prepare for the future, Ricciardi says. Meanwhile, being too active can drive up trading expenses, resulting in lower returns, he adds.

How to overcome it: Let the numbers do the talking. Sit down with a retirement calculator when charting your investing journey. Make sure you fully understand the tax implications and costs associated with selling investments.


Source
Author: Anna-Louise Jackson
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When Is Investing Like Gambling?

  • Discusses parimutuel betting and its similarities to stock-market investing.
  • Draws on two examples, those of Bill Benter and Edward Thorp, to illuminate similarities between gambling and investing.
  • Presents a justification for treating investing as a branch of gambling while recommending a systematic approach.

LIONBIT

Last May, Kit Chellel wrote a very interesting article for Bloomberg News about Bill Benter, who won $900 million betting on horse races. The races he bet on were run on a parimutuel system, where odds are updated in proportion to how bettors bet, with the house simply skimming a commission of the top.

One passage in the article leaped out at me:

Buried in stacks of periodicals and manuscripts, [Benter] found what he was looking for—an academic paper titled “Searching for Positive Returns at the Track: A Multinomial Logit Model for Handicapping Horse Races.” Benter sat down to read it, and when he was done he read it again.
The paper argued that a horse’s success or failure was the result of factors that could be quantified probabilistically. Take variables—straight-line speed, size, winning record, the skill of the jockey—weight them, and presto! Out comes a prediction of the horse’s chances. More variables, better variables, and finer weightings improve the predictions.

It struck me that that’s exactly what I’m doing when I trade.

The stock market is a bit like a parimutuel system. In parimutuel betting, all bets are placed in a pool, taxes and the house take are skimmed off the top, and the pool is shared by the winning bettors.

Let me give an example. Let’s say five horses are racing, and right before the race is run, all bets have been placed. $100 has been placed on horse #1, $200 has been placed on horse #2, $300 on horse #3, and so on. Altogether, $1500 has been bet. Let’s say the taxes and the take amount to 10%, leaving $1350 in the pool. If horse #5 wins, then those who bet on that horse will take home $1350 divided by $500, or a payout ratio of 2.7 to 1. If horse #1 wins, on the other hand, those who bet on that horse will take home $1350 divided by $100, or 13.5 to 1.

How is this like the stock market? Because in both cases, prices are set purely by the bidders, the traders, the buyers and sellers. The key to winning in a parimutuel betting system—just like the key to winning in the stock market—is to wield an advantage over other bettors/investors through better information/data and/or a better strategy.

Just like Bill Benter did, a wise investor can take factors that can be quantified, weight them, and come up with a prediction of a stock’s chances. The more and better variables, the better the predictions.

This has been my practice: to use as many and good variables as possible, to weight them well, and to look at every decision I make in probabilistic terms. I’m betting on twenty-seven stocks right now, stocks that I think will be winners not only because they’re primed to beat other stocks, but because I’m using formulas that few other investors use. I’m interested not only in the future performance of the companies I invest in but in the behaviors of other investors in those companies, just as Benter was interested not only in the performance of the horse he bet on, but in the betting behavior of his competitors.

The relationship between gambling and investing is made explicit in the abstract to the 1986 paper that Bill Benter read: “This paper investigates fundamental investment strategies to detect and exploit the public’s systematic errors in horse race wager markets” (emphases added).

At some point, gambling and investing can become interchangeable. Bill Benter was a gambler. But what about Edward O. Thorp, one of the greatest investors in history? Fundamentally, he was a gambler too.

Thorp started out playing blackjack. He proved, mathematically, that the odds could be in his favor if he counted cards, and in his 1966 book Beat the Dealer he was the first to show exactly how it could be done. When Thorp placed his bets at a blackjack table using his method, was he gambling or investing?

“The overlap of interest between gambling and the stock market is very high,” Thorp once said. “It’s an amazing phenomenon. But there are so many similarities and so much one can teach you about the other. Actually, gambling can teach you more about the stock market than the other way around. Gambling provides an analytically simpler world, and you can see principles and test theories.”

TIP

Thorp went on to derive the Black-and-Scholes options pricing model a few years before Black and Scholes (he decided to keep it secret in order to make money on it). Between 1969 and 1988 his Princeton Newton Partners firm made 19.1% annually, with a positive performance in 227 out of 230 months. Frederik Vanhaverbeke, in his book Excess Returns, points out that the probability of getting this kind of performance by pure chance is smaller than the probability that one would find a specific atom by looking in a random place on earth. Over twenty-nine years, Thorp’s compound annual return was almost 20%.

Now a lot of gambling has nothing to do with investing, and a lot of investing has nothing to do with gambling. Gambling based on odds set by a money maker rather than by other gamblers (as in most sports betting these days), gambling on slot machines, gambling on lottery tickets—these have little in common with investing. Dividend investing and fixed-income investing have little in common with gambling.

But I would argue that the point when successful gambling and successful investing become interchangeable comes when your aim is to beat the market, you take a purely systematic approach, you never let your emotions get in the way, and you let the data do the work.

If you take a rigorous probabilistic approach and put in lots of practice and hard work, it’s not that difficult to beat the house.


Here at Dollar Destruction, we endeavor to bring to you the latest, most important news from around the globe. We scan the web looking for the most valuable content and dish it right up for you! The content of this article was provided by the source referenced. Dollar Destruction does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products or other materials on this page. As always, we encourage you to perform your own research!

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Author: Yuval Taylor
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Top Reasons Why Bitcoin (BTC) Is Better Than Dollar and Gold

The rise and rise of Bitcoin (BTC) has led to an incredible increase in interest in this digital currency. Apart from those seeking to know how they can invest in it, there’s a huge multitude of others who wonder what all the fuss is all about. For the latter, the main concern is that Bitcoin (and other digital currencies) don’t represent what they understand to be money or value- fiat and gold.

Bitcoin certainly has its own disadvantages when compared to the dollar and gold, but are there solid reasons that put it on top? The answer is yes. Here are some of the many pros of Bitcoin over fiat currencies or the gold standard.


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Bitcoin empowers the people not the banks

Basically, Bitcoin gives the user the power over their funds and since no one controls it, no one else has power over it. It’s unlike gold and the fiat, which are under the control of established financial bodies like central banks. We could say Bitcoin’s power comes from the fact that its supply and use can’t be manipulated.

There are of course instances when rogue traders can manipulate prices by illegal trading tactics. However, that will soon come into check when Bitcoin’s inbuilt scarcity means no one would hold huge amounts, enough to dump on the market. Bitcoin’s deflationary nature means that prices will increase on the principle of supply and demand.

Bitcoin better as a currency

One of the main disadvantages of the current system of money- whether the fiat currencies or the gold reserves- is that they are too slow. Bitcoin beats these forms of transactions for speed. You can send or receive millions of USD for instance within seconds using Bitcoin’s blockchain technology. The opposite is what happens with fiat currencies like the dollar.

Moving huge sums of money from one bank to another or even from an individual’s account takes hours to days, depending on the amounts involved. In addition, the transactions can be costly, often at the expense of those that were to benefit from the money.  All the while, issues of privacy and security are compromised- banks will demand identification and very huge sums of money attract suspicion.

With Bitcoin, money moves fast, less costly, and without the bureaucracy or privacy infringements of fiat-based transactions. Furthermore, Bitcoin transactions are tamperproof and records remain intact forever, as explained below.


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Bitcoin (BTC) beats the dollar and gold on transparency

The blockchain is open-source and anyone on the network can take part in the transaction process, or check records to verify them. The same cannot be said of fiat and the precious metal. The public may not have a clue to the inner workings of the controlling bodies. It’s not easy to tell what the Federal Reserve can be up to, or whether what we have in circulation is really the total amount of gold there is.

Changes to the fiat or gold supply may not be verifiable, but as for Bitcoin, any change to the code is reached via consensus. The world can suffer economic challenges on the whims of a few when it comes to fiat or gold being the accepted forms of money. That can’t happen with Bitcoin, it’s next to an impossibility.

Bitcoin’s public ledger helps to make accounting easy, verifies the validity of transactions, and is essential in preventing counterfeits. These pros are not tamper-proof in relation to fiat currencies or gold.

Bitcoin provides better security compared to the Dollar or gold

This may lead to a debate from some quarters, so let me put it out there clearly: Bitcoin too, isn’t 100 percent secure. However, when it comes to securing money, Bitcoin is way better compared to the fiat currencies (including gold). There are rampant cases of identity theft and counterfeit bills are common all over the world. Losing money is also far easier than losing Bitcoin- especially if the user knows what to do.

Bitcoin, as a result, provides a higher chance of preventing losses due to their digital nature. There are several ways to ensure you keep your money safe when stored in Bitcoins, especially as the world moves towards a digital age.

Cyber attacks do happen and Bitcoins have been lost before, but the rarity of the matter makes it better than traditional fiat.

Conclusion

There are several other reasons that make Bitcoin (BTC) better that fiat (the Dollar) and gold. What’s even more encouraging is that the technology behind Bitcoin is still young and will get better with time. It could eventually replace fiat as we know it.


Here at Dollar Destruction, we endeavour to bring to you the latest, most important news from around the globe. We scan the web looking for the most valuable content and dish it right up for you! The content of this article was provided by the source referenced. Dollar Destruction does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products or other materials on this page. As always, we encourage you to perform your own research!

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Author: Ulysses Smith 
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US annual budget deficit forecast to hit $1 trillion

The US is heading for an annual budget deficit of more than $1 trillion (£707bn) by 2020 following tax cuts and higher public spending, according to the Congressional Budget Office.

It said that while the measures will temporarily boost the US economy, they will exacerbate its long-term debt.

The agency said US debt could rise to a level comparable to World War II and the financial crisis.

It warned that it would have “serious negative consequences” for the US.
The CBO’s report has been revised to incorporate the effects of a new $1.3 trillion government spending bill and the $1.5 trillion in Republican-led tax cuts approved last year.

It lifted its economic growth forecast for this year and next to 3.3% and 2.4% respectively.
However, the non-partisan CBO said the deficit – the difference between what the government spends and what it receives through tax receipts – is expected to rise to $804bn in 2018 from $665bn in the previous year.

The budget deficit is then expected to grow to $1 trillion by 2020.

Rising debt

The agency said it now expects America’s cumulative deficit over the next decade to grow to $11.7 trillion compared to a previous forecast of $10.1 trillion.

It added that debt would hit $28 trillion, or about 96% of GDP, by 2028.
The figure would be even larger if the tax cuts for individuals and families do not expire as scheduled.

The CBO said that “such high and rising debt would have serious negative consequences for the budget and the nation,” which would include limiting the government’s flexibility to introduce new policies and making it vulnerable to fiscal shock.

The report is expected to fuel concerns that China could use its position as America’s largest foreign creditor to its advantage during the current trade dispute.
Democrats seized on the report to criticise Republicans, who have previously championed fiscal responsibility.

Senator Chuck Schumer of New York said the report “exposes the scam behind the rosy rhetoric from Republicans that their tax bill would pay for itself” and warned that Republicans will now use the rising debt to call for cuts to welfare programmes such as Social Security.


 

Here at Dollar Destruction, we endeavour to bring to you the latest, most important news from around the globe. We scan the web looking for the most valuable content and dish it right up for you! The content of this article was provided by the source referenced. Dollar Destruction does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products or other materials on this page. As always, we encourage you to perform your own research!

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Author BBC News

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