Alex Pit

Alex Pit has 17 articles published.

Alex Pit
Alex Pit is a contributor to The Liberty Conservative and

Housing Market Leverage

The most important line item for consumer liabilities is home mortgages because it’s the biggest segment. As you can see from the chart below, the home mortgage liabilities as a percentage of disposable income have followed the homeownership rate downwards following the 2008 recession. Keep Reading


The Business Cycle & Fiscal Policy Timing

In this article, we’ll discuss the unusual timing of the fiscal stimulus and how it could affect markets. Keep in mind, this isn’t a partisan article. Our purpose is to review objectively both the good and the bad. Most administrations want to cut taxes and increase spending to boost the economy. Usually the election cycles are coordinated with the business cycle since the business cycle is manipulated by fiscal and monetary policy. While regulation and tax cuts help the economy, they were combined with extra spending, thus deteriorating the US balance sheet, which carries with it long-term consequences that may… Keep Reading


Buybacks Are Better Than Dividends

Retail investors are in love with dividends more than they should be with significant fan followings and discussion forums online dedicated to the worship of dividend stocks. Clearly, dividends are seen as important because public companies love to brag about how consistent their dividend payments have been and how much they’ve raised them. Dividends are beloved because they give investors the allure of safety. Retail investors feel that a dividend payment is secure which means the investment is secure. However, in the financial crisis, dividend stocks fell about the same amount as the S&P 500. To be clear, dividend payments… Keep Reading


Monetary Policy Doesn’t Follow GDP

The Fed funds rate is a hotly debated topic because it’s the main policy tool the Fed uses. There is economic data which can be interpreted to support every argument. Furthermore, after the metrics are taken into account, the goals are subject to interpretation. Just because the core inflation rate goes above 2%, doesn’t mean the Fed needs to hike rates, as we have previously discussed. The Fed could determine that its mandate of creating stable prices is hit when the core inflation is 3%, as an example. We’ve seen the Fed ignore the data in 2017 because it felt… Keep Reading


Manufacturing Cyclical Weakness Coming?

In the financial media, it’s easy to see what the economists and analysts think about the current economy because usually they propose more of the same when asked about the future. It’s simple to extend the current trend indefinitely, but that’s not always a good idea, nor is it realistic. Even during economic expansions, there are mid-cycle slowdowns. While a slowdown doesn’t mean a bear market is coming for the overall market, it could mean a correction is coming in at least a few sectors. Therefore, it should affect how you allocate capital. Keep Reading


Trade Wars: Two Sides To Every Story

The purpose of this article is to objectively examine trade policy and its impact on the economy. While there will be discussion of government policy, our review is not negatively nor positively inclined towards any particular administration. During the presidential campaign trail, then Candidate Trump stated that he’d renegotiate trade deals to stop other countries from ripping America off. Following the election, for the first year of his presidency, it appeared there wouldn’t be any trade wars as promised. This belief existed because Trump met with Chinese President Xi Jinping last May in which he negotiated a deal to open… Keep Reading


Student Loans – A Generational Disaster

One of the biggest generational differences which causes a disconnect between baby boomers and millennials is student debt. Many baby boomers are confused why college graduates don’t immediately move out of their parents’ house like baby boomers did. The issue is that once a student graduates, they become debtors. It’s a vicious cycle which turns compound returns against borrowers. For example, say you graduate with $40,000 in debt and you owe a 4% interest rate for 15 years. While the federal government expects the loans to be paid back in 10 years, it takes the average Wisconsin graduate 19.7 years… Keep Reading


Correlation/Causation With Interest Rates, Inflation, And Stocks

Investors are trying to get a reading on where inflation will go in the next 12 months because it’s a key variable for forecasting asset prices and the Fed funds rate. As you can see from the chart below, the year over year core CPI will hit near 2.5% in late 2018 if the month over month increase is 0.16% in February and 0.19% going forward. Keep Reading


10 Year US Treasury Vs Stocks: Does Historical Correlation Matter?

We’re going to dedicate another article to re-discovering the relationship between the 10 year bond and the stock market. With bond yields skyrocketing in the 4th quarter of 2017 and the first 2 months of 2018, it’s more important now than ever to understand the relationship. The confusing aspect, which started during the correction in early February 2018, is that the financial media headlines blame yields going up for the stock market decline, but the yields and stocks often act in correlation. In a previous article, we discussed that historically when the 10 year bond yield gets to 5%, stocks… Keep Reading


US Debt Becoming A Problem For The Dollar

Some analysts speculated if the Fed would try to keep rates low to support the government’s spending binge. However, instead of worrying about the debt, the $400 billion spending plan and the tax cuts are being used as an excuse to raise interest rates and let the government bonds on the Fed’s balance sheet expire. At a conference on February 27th, which was right after Powell’s first Congressional testimony, Yellen and Bernanke were asked about the biggest risk factor facing the economy. Bernanke said geopolitical events and Yellen worries about how the Fed balances growth versus inflation. While these are… Keep Reading


Best & Worst Real Historical Returns: Where To Invest?

With the first stock market correction in over a year, having occurred in early February, there were many media narratives about what caused the selloff. We think it was driven by the unwind of the short VIX trade. Buying protection wasn’t considered important with the VIX at record lows in 2017. However, when nobody thinks there’s a need for protection, it’s probably a good idea to buy some especially since it’s cheap. Shorting the VIX is shorting protection. The stock market was like a car driving 80 miles per hour where the riders were betting against the need for air… Keep Reading


US Housing Is Becoming Unaffordable

We’ve discussed the price to income ratio of housing in a previous article. This gave us an idea of how expensive housing has become. We’ll discuss some of best points why real estate is too expensive and then provide the counterpoint explaining why housing isn’t in a bubble. Keep Reading


ECB Unwind Causes Monetary Conditions To Tighten

In January, the ECB tapered its bond buying from €60 billion per month to €30 billion per month. Equally as important, the central bank is expected to stop its bond buying completely by September 2018. European economic growth has accelerated recently, but it’s unclear how much the economy was helped by the QE and how much it was helped by the global synchronized economic recovery. The ECB policymakers will, of course, take credit for the success. This is just like how Janet Yellen is praised for keeping the economy out of a recession as if she was the sole reason… Keep Reading


The Economy Is Approaching A Recession

There are many ways to measure market cycles and the business cycle, however economics is not an exact science. One of the methods that can be used alongside measuring of the yield curve is the output gap. The output gap is the difference between actual and potential economic production. It allows economists and investors to determine what point the economy is at in the business cycle. When the output is above potential, the economy starts to overheat, causing inflation. When output is below potential, the economy isn’t growing as fast as it could, possibly because of a recession. To make… Keep Reading


Are Corporate Earnings Affected Adversely By Hurricanes?

Earnings are the biggest driver of stock prices and valuation. This doesn’t imply companies are the sole determinants of their stock prices. Issues like geopolitics, the weather, and the economy get filed under systematic risk factors. These are the factors that are talked about in the news so much because they apply to all companies. It’s important to have a balance between reviewing the macroeconomic conditions and the company’s specific fundamentals. If you focus too much on the macro issues, you might miss out on companies that are doing well in spite of the macro challenges. Trends and headline issues… Keep Reading


Is The US Stock Market Overvalued?

Valuation is the method of determining what an asset is worth. The price, on any given day of a stock, is how the market is valuing that asset. Your ability to look at various metrics when coming up with a valuation will determine if you can do a better job than the market at determining what an asset is worth. If you can outwit the market, you make profits. If you can’t, you underperform the market or lose money. Some methods of stock valuation are the following: price to earnings (PE) multiple versus growth, earnings yield versus fixed income yields,… Keep Reading


Tax Myth: Why Companies Will Not Repatriate Overseas Cash

As with seemingly every election cycle, tax reform is a hot topic, as though a carrot that dangles in front of the horse. Whether you’re in favor of larger or smaller taxes, its a discussion that is important to have. The goal of this preliminary tax discussion is to separate the narrative from the reality. With President Trump’s election there has been discussion of getting rid of the interest tax deduction for mortgages, as well as the border adjusted tax. Both of these would be a tax on consumption which would negatively affect the consumer. However, despite the rhetoric, the key… Keep Reading

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