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Do Low Treasury Yields Keep Stocks From Thriving?

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Do Low Treasury Yields Keep Stocks From Thriving?

Given that it’s normal for Treasury yields to go down as Treasury pricing goes up, one would think that low Treasury yields would be a good indication of a strong Treasury market. 

They should indicate that Treasuries—and therefore at least that corner of the stock market—are thriving. 

However, as recent evidence shows, this may simply not be the case.

The Equities Portion Of The Stock Market Did Do Better In April

In the third week of April, the S&P 500 managed to work its way up to -0.85%.

s&p

While the Dow Jones Industrial Average climbed to -1.05%. 

dow

Both were in the neighborhood of 1% from their record highs. 

This was, indisputably, a very positive sign for the equities market.

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Treasuries, While Strong, Are Not Gaining At The Same Rates As Stocks Are

Treasuries are still a desired commodity, meaning that their yields have remained almost as low as their lowest dip on Feb 11th, gaining only 50 basis points in the interim. 

This is in direct contrast to the S&P 500, which has gained 217 points since Feb 11th

s&p feb 11

Clearly, treasuries are just not keeping pace with equity gains.

With stocks doing poorly at the beginning of the year, investors were freaked and fled to the safety of Treasuries. 

But when the market began to bounce back in February, the U.S. Ten Year Treasury Note yield did not follow suit. 

In fact, it has gone through several spikes and valleys heading in a generally downward direction and landed well south of the S&P 500.

This Does Not Mean That The Low Yields Are Entirely A Bad Thing.

Yes, low yields on Treasuries can be an indicator of a spooked or depressed market. 

However, equity is currently outperforming Treasury yields, and just because Treasury yields are now being outperformed does not necessarily make them a bad investment.

Yields are still low, meaning that the government can borrow money at a very low-interest rate. 

The flip-side of this is, of course, that the government can borrow money at a very low interest rate, and there is concern that it may spend the borrowed money irresponsibly.

 Experts At The Federal Reserve Bank Of St Louis Point Out Some Benefits To Low Interest Rates In General

  • Lower interest rates makes borrowing easier. By lowering the cost of borrowing, low yields encourage companies to invest in capital goods. They also encourage individual consumers to buy items that often require loans, such as automobiles and permanent housing.
  • Banks can lend more easily.
  • Finally, asset prices can take a boost. With more access to money, people find themselves spending money on goods and services, or assets like houses or corporate equities. This increased demand, especially for the latter, leads to higher prices in these markets.

So, Low Yields Mean A Stronger Equity Market, Correct?

If Treasury bonds pull in only a very small rate of interest return, it stands to reason that investors will go for equity stocks instead.

J.P. Morgan Begs To Differ, Saying That Low Yields Are Keeping The Market Down

It claims that the same worries that pushed people to invest in treasuries to begin with are preventing them from branching back out into equities.

It also cites central bank policies, along with slow market growth to begin with, as having led to the low yields and accuses them of sustaining lower yields indefinitely.

J.P. Morgan’s Proposed Solution

Bite the bullet and very cautiously begin investing in the historically safer equities—they cite utilities, telecom, and real estate as good examples.  Without a certain amount of equity purchasing, low interest rates will yield no market growth of consequence.

They also recommend dropping cyclical stocks. 

The reason for this is the general trend of consistently low Treasury yields meaning slow market growth which will hurt these cyclicals and, by extension, those who invest in them.

In short, be a little brave and branch away from treasuries for a time.

Brad Friedlander Of Angel Oak Capital Advisors Estimates That The Situation Cannot Remain As It Currently Is.

He believes that both sectors are probably going to correct themselves.

 He suggests that equity will drop somewhat, and yields will grow somewhat leading to a compromise position for both. 

Unfortunately, that means that neither will yield spectacular results for their investors in the short term.

So What Does This Mean For The Average Investor?

It would appear that the overall market requires a balance of investments in Treasury bonds and equities. 

While Treasury bonds are very safe, they are also giving back little return on investment with such low yields at the moment. 

While equities are riskier, a certain amount of equity investment is also required for a healthy market. 

Good luck and skill with equity investment may yield higher gains than Treasury bonds. 

While no one is under any obligation to take one for the team and go into equity, pulling out of Treasury bonds for the time being would raise yields and—if J. P. Morgan is right—improve economic growth overall.

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How To Teach Your Kids About Credit Cards

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If you have kids in college, this article is for you. Teaching kids about credit cards is one of the most important tools you can give them The world of credit cards can be confusing and giving your kids a little education might save them a lot of headache and debt.

Students need to learn credit card lessons

BY JULIE JASON

Do you have children in college? Have you talked with them about how to handle credit?
When I wrote about this topic in 2008, students were inundated with credit card offers. According to Benjamin Lawsky, who, as a special assistant to the New York state attorney general, testified before the U.S. House of Representatives’ Subcommittee of Financial Institutions and Consumer Credit, “marketers set up tables in high-traffic spots on campus, such as cafeterias, student unions, bookstores, and other campus buildings … [and at] campus events including freshman orientation, activity fairs, athletic events and graduation fairs.”

Then came the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act).

Now, companies cannot sign up individuals under the age of 21 without a co-signer or proof of personal financial resources. Marketers offering incentives like pizza can no longer do so while at “an institution of higher education” or even within 1,000 feet of the school. They also may not make such offers “at an event sponsored by or related to” the school. Pre-approved offers of credit to individuals under the age of 21 also are prohibited.

Still, card offers are being made, and students need to know whether to act on them. You can expect that student credit cards will have less favorable terms than those offered to people who have a credit history; students are higher-risk borrowers.
Further, students, even those over age 21, may not understand that missing a payment or making a late payment not only increases the cost of credit, but also creates a negative credit history, something everyone should work to avoid.

“A bad credit history can make it harder for you to get mortgages, car loans and credit cards in the future,” explained Matt Schulz, a senior industry analyst at CreditCards.com, a credit card comparison website.

“If you do get them, crummy credit can also cost you a fortune over the years in the form of higher interest rates and fees. It can also stand in the way of getting a job,” explained Schulz.

What can a parent do?
Since going away to college is the first step toward independence, you want to be sure that you respect your child’s need for self-sufficiency. But that doesn’t mean he or she has to go it alone. There are simply too many serious, long-lasting repercussions.

Communication and planning are key.

First, before your child leaves for school, talk to him or her about the benefits and the detriments of getting a student card. Establishing a credit history is a benefit. So is learning the discipline of paying bills on time to avoid a negative history.

Second, research options together with your child. Look online at CreditCards.com (search for “student cards”), WalletHub.com (click on “Credit Cards,” then “College Student”) or creditkarma.com (go to “Credit Cards,” then “Student”). Consider the fees, rates and penalties of different cards, and make a joint decision on the type of card that might make sense. For example, you might consider prepaid cards or secured cards. Prepaid cards work like debit cards. No credit is extended. You prepay the card, and when the balance is low, you fund it. Secured cards require a cash deposit that acts as the credit line for the account. This allows a credit limit to be established, without risk to the bank.

Third, decide on an acceptable monthly budget and what to do if it isn’t followed.  Talk about how you would like your child to communicate with you if that happens.

Fourth, determine whether you and your child agree that he or she should not accept credit card offers before reviewing them with you.

Fifth, agree on how the two of you should check in with each other. Will you talk each month about finances, perhaps setting a date in advance? Will you encourage your child to let you know about challenges before they become problems?

In the beginning, your child will benefit from some gentle guidance. You don’t want him or her to be adrift in a financial morass that could have been avoided with a little planning and care. Financial literacy calls for learning a new skill, and it is not reasonable to expect a child to go on this financial journey alone.

For information on the impact of the CARD Act, read the Consumer Financial Protection Bureau’s report (the Card Act Report), which you can find at https://www.consumerfinance.gov.

* * *
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford, Conn.) and award-winning author, welcomes your questions/comments ([email protected]). To hear Julie speak, visit www.juliejason.com/events.

(c) 2018 Julie Jason.
Distributed by King Features Syndicate Inc.

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JPMorgan Chase’s China License a Huge Win

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The financial sector seems to be alive and well under Donald Trump’s new administration. For all his talk of demonizing Wall Street, Trump seems to have taken a shine to banks and their executives. And even though President Trump has a rocky relationship with China, one of his closest banks just did something no bank has ever done before – receive a license to underwrite corporate bonds in China’s interbank bond market. Will other banks be far behind?

Is the JPMorgan Chase’s Relationship With the President the Reason for the Historic License?

JPMorgan Chase is living large. The bank’s CEO, Jamie Dimon, has a particularly close relationship with our new president, and was in fact Trump’s first pick for Treasury Secretary. The bank is up about 24% since the election. Last week, President Trump signed an executive order to loosen regulatory restrictions on banks and lenders by targeting the Dodd-Frank act, essentially giving JPMorgan the opportunity to double its lending, which is already near an all time high. Now, the largest U.S. lender just got entry into China’s $6.4 trillion bond market – the third largest in the world. Is it all connected? Is Dimon’s relationship with Trump to credit for its good fortune?

Yes and no.

Dimon is a close advisor and friend to Trump, meaning that for all his promises to clean up Wall Street, Trump’s actions are all currently focused to help the financial sector. But though Dimon can advise Trump, it’s ultimately up to the bank itself to chart its own course. And JPMorgan has done a stellar job of that.

The bank was granted a business license in September of 2016 to operate a fully owned fund management business in China thanks to the Chinese Central Bank’s decision to loosen entry restrictions. That license led to its approval to underwrite corporate debt in the China market, which is JPMorgan’s bread and butter. The bank earned about half of its investment banking fees from debt-underwriting last year, meaning that it now has the ability to double its revenue with one new market.

Watch this news clip from CNBC where JPMorgan Chase’s CEO, Jamie Dimon talks about President Trump’s reforms:

Thanks to China loosening entry restrictions, JPMorgan won’t be the only U.S. headquartered bank in town for long. But between that time and today, the lender should see ample profits and develop some competitive barriers to entry for other banks. Between the China license and the repeal of Dodd-Frank, expect shares of JPMorgan Chase & Co. (JPM) to rise UP.

 

The executive order for the repeal of Dodd-Frank Act has been signed, see the whole story here!

 

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This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.

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More Bad News From Wellsfargo CEO Resigns

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SAN FRANCISCO–(BUSINESS WIRE)– Wells Fargo & Company (NYSE:WFC) announced today that Chairman and Chief Executive Officer John has informed the Company’s Board of Directors that he is retiring from the Company and the Board, effective immediately. The Board has elected Tim Sloan, the Company’s President and Chief Operating Officer, to succeed him as CEO, and Stephen Sanger, its Lead Director, to serve as the Board’s non-executive Chairman, and independent director Elizabeth Duke to serve as Vice Chair. Sloan also was elected to the Board.

Wells Fargor CEO John Stumpf Resigns

Sloan’s appointment to CEO and election to the Board are effective immediately. He will retain the title of President.

Sanger said, “John Stumpf has dedicated his professional life to banking, successfully leading Wells Fargo through the financial crisis and the largest merger in banking history, and helping to create one of the strongest and most well-known financial services companies in the world. However, he believes new leadership at this time is appropriate to guide Wells Fargo through its current challenges and take the Company forward. The Board of Directors has great confidence in Tim Sloan. He is a proven leader who knows Wells Fargo’s operations deeply, holds the respect of its stakeholders, and is ready to lead the Company into the future.”

, a 34-year veteran of the Company, joined Wells Fargo in 1982 as part of the former Norwest Bank, becoming Wells Fargo’s CEO in June 2007 and its chairman inJanuary 2010.

“I am grateful for the opportunity to have led Wells Fargo,” said. “I am also very optimistic about its future, because of our talented and caring team members and the goodwill the stagecoach continues to enjoy with tens of millions of customers. While I have been deeply committed and focused on managing the Company through this period, I have decided it is best for the Company that I step aside. I know no better individual to lead this company forward than Tim Sloan.”

Sloan said, “It’s a great privilege to have the opportunity to lead one of America’s most storied companies at a critical juncture in its history. My immediate and highest priority is to restore trust in Wells Fargo. It’s a tremendous responsibility, one which I look forward to taking on, because of the incredible caliber of our people, and the opportunity we have to impact the lives of our millions of customers around the world. We will work tirelessly to build a stronger and better Wells Fargo for generations to come.”

Sloan joined Wells Fargo 29 years ago, launching a career that would include numerous leadership roles across the Company’s wholesale and commercial banking operations, including as head of Commercial Banking, Real Estate and Specialized Financial Services. He became president and COO in November 2015, when he assumed leadership over the Company’s four main business groups: Community Banking, Consumer Lending, Wealth and Investment Management and Wholesale Banking. Previously, he headed the Wholesale Banking group after serving as the Company’s Chief Financial Officer and, prior to that, as the Company’s Chief Administrative Officer.

Sanger has been a member of the Wells Fargo Board since 2003, serving as its Lead Director since 2012. Sanger also chairs the Governance and Nominating Committeeand is a member of Human Resources Committee and Risk Committee. He was CEO of General Mills, Inc., a leading packaged food producer and distributor, from 1995 until 2007. He served as chairman of General Mills from 1995 to 2008. He also serves on the board of Pfizer Inc.

Duke has been a member of the Wells Fargo Board since 2015. She served as a member of the Board of Governors of the Federal Reserve System from 2008 to 2013, where she served as Chair of the Federal Reserve’s Committee on Consumer and Community Affairs and as a member of its Committee on Bank Supervision and Regulation, the Committee on Bank Affairs, and the Committee on Board Affairs. She also previously held senior management positions at banks including Wachovia and SouthTrust.
Watch this video from CNN Money and find out what Elizabeth Warren says about Wells Fargo CEO to resign.

Amazon Expands Grocery Biz With Convenience And Drive Up Stores. Check this news here!

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The statements, views, and opinions of any article, contribution, editorial, or advertisement in this publication are not necessarily those of The Capitalist or its editorial staff, and are not considered an endorsement, sponsorship, or recommendation of any referenced product, service, issuer, or groups of issuers.

This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.

The Capitalist disclaims any liability for the accuracy of or your reliance on any statements, views, opinions, or information in this publication.


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