Article Category: Psychology

Is This Why Stocks Keep Moving Higher?

If you're having trouble understanding why the stock market keeps heading higher, try having a BEER. At the very least, it'll give you a different perspective on the relative valuations between stocks and bonds.

BEER is Wall Street parlance for the Bond Equity Earnings Yield Ratio. While that may sound like a mouthful, the concept is not too difficult to grasp. At its heart, this ratio compares the current yield on Treasury Bonds to the earnings yield of stocks.


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Posted in: Corrections Federal Reserve Interest Rates Psychology

Everything Hinges on Inflation (Expectations)

A few weeks ago I wrote a piece about the flattening yield curves in the top five economies. The implication being that these economies are under duress, as investors forgo adequate compensation in favor of stashing their cash somewhere safe.

Before getting into the heart of today's article, I want to show you a great chart that I came across. It's a three-dimensional chart of the U.S. yield curve.

This chart shows the entire yield curve, from the 1-month Treasury all the way to the 30-year Treasury, over the last two and a half decades.


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Posted in: Bonds Federal Reserve Inflation Interest Rates Psychology

Bond Mechanics in a Negative Interest Rate World

We're going to talk about bonds today but before we get to that, I want to briefly point out why the Brexit event is impacting U.S. markets so heavily.

As we've discussed many times here at DTL, the strength of the U.S. dollar dictates the cost of U.S. goods to our trading partners. When the dollar goes down, our goods go on sale; when the dollar goes up, it's equivalent to a price hike across the board. And it goes without saying that higher pricesstifle demand, which means less revenue, profits, etc.


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Posted in: Bonds Federal Reserve Gold Inflation Interest Rates Psychology

Corporate Profits Point to Lower Stock Prices

Let's begin briefly with an update on where we left off last Monday, with the S&P 500 in the process of tracing out a head-and-shoulders formation.

During last week's action we saw the S&P rally back above the 2075 mark, only to fall back down and test the 2040 area on Friday. Support (at the dashed neckline) has held so far, but we're not out of the woods yet. A couple of down days could put us well beneath that mark.


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Posted in: Earnings Psychology

Beware of Belief Perseverance

Let's talk psychology again for a moment. Specifically, the idea of belief perseverance.

It affects all of us. I'm guilty of it. You're guilty of it. And everyone else is too, including major decision makers such as Janet Yellen and Barrack Obama. None of us can hide from it, all we can do is attempt to understand it, and thus better understand ourselves.

Belief perseverance refers to the natural tendency of individuals to hold their beliefs as true, even when confronted with ample disconfirming evidence.


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Posted in: Psychology

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