Mid-Year Summary

Despite a surprise slowdown of US economic growth in the first quarter, the stock market has continued to climb higher. The S&P 500 is up by over 7% year-to-date. US equity REITs have been especially strong, already returning more than 17% so far in 2014. Meanwhile, the benchmark 10 year US Treasury yield has fallen … Continue reading Mid-Year Summary →

No Free Yield

Interest rates have moved up this year but are still near historic lows. This is especially true at the front end of the yield curve where people are basically earning nothing on their savings, money market, and even short-term CD accounts (and even losing money net of inflation). Demand from yield-starved investors and the opportunistic … Continue reading No Free Yield →

Last Yield Standing

For those living off a fixed income, the current interest environment is, to say the least, quite unsavory. Extending out to 30 years on the Treasury curve only fetches a paltry 3% (and a taxable 3% at that). This has interest-starved investors loading up on junk bonds and leveraging up bond portfolios (risk parity anyone?). … Continue reading Last Yield Standing →

Dangers of High Yield Hunting

Fixed income investors that were accustomed to earning 5% on a portfolio of government bonds are now getting 2% for the same securities. The steep drop has interest starved investors hunting for yield. As usual, the easiest way to increase yield has been to increase risk, and investors have taken the path of least resistance. … Continue reading Dangers of High Yield Hunting →

Hot or Not

Bonds continue to be unpopular among professional investors. Over the past year, many well-known investors including John Paulson and Warren Buffet have expressed their preference for stocks over bonds. It's easy to understand why. The current 2.45% yield on a 30 year Treasury is not only historically low but is practically negative when adjusted for inflation. At least stocks have the … Continue reading Hot or Not →

Herd on the Street

Going into 2011, analysts up and down Wall Street were calling for stocks to outperform bonds. As of October 31st, U.S. stocks are down 2.6% year to date. Meanwhile, U.S. bonds are up 7.01% over the same period. Figure 1 shows the change in prices for the S&P 500 and the Barclay's Aggregate year to date. … Continue reading Herd on the Street →

Old Euro Dogs

This morning Euro Zone policymakers announced an agreement where certain private investors (mainly banks and insurance companies) would take 50% haircuts on their holdings of Greek debt. This is basically a managed default. And though it runs totally contrary to what policymakers were promising earlier this year (aka that Greece would not default), it really should have been expected. Back … Continue reading Old Euro Dogs →

Bernanke Put

The markets seem to be hoping that good ol' helicopter Ben will come through with another round of quantitative easing (QE) tomorrow. Doing so would extend the legacy of the "Greespan Put" and probably ignite a speculative risk-on rally. Analysts like Dave Rosenberg and Bill McBride have pointed out how equity markets seem to be dancing around the Fed's QE activities, shown for … Continue reading Bernanke Put →

Patient Trigger Finger

So what did the stock market think about S&P's downgrade? We got an answer today, in bright flashing red. The Dow sank 634 points today - the sixth largest single-day drop in history. To be fair, the sell-off wasn't rooted entirely in the downgrade (which was widely expected). Rather, as I have written before, it looks like the market is … Continue reading Patient Trigger Finger →

Here Comes the Sink

It was a wild week for US markets. Volatility was off the charts and on Thursday the Dow dropped 512 points - its ninth largest single-day drop in history. Stocks are down about 7% from their peak in April and are now negative for the year. Then on Friday, adding insult to injury, Standard and Poors stripped … Continue reading Here Comes the Sink →

What’s up with the Debt Ceiling

We are within an arm's length of reaching a "debt ceiling" in the United States. In other words, the government has basically maxed out the national credit card (based on limits established by US law). The Treasury Department has indicated that unless Congress authorizes additional borrowing (which only Congress can do through its lawmaking functions), the United States will not … Continue reading What’s up with the Debt Ceiling →

The Game Must Go On

This morning Ben Bernanke, Chairman of the Federal Reserve (the US central bank aka the Fed), delivered his semiannual report on monetary policy to Congress. During the report, Bernanke said, “the possibility remains that the recent economic weakness may prove more persistent than expected, and that deflationary risks might reemerge, implying a need for additional policy support.” … Continue reading The Game Must Go On →