As I mention in my video, the price of bonds (in general) have decreased causing yields to increase. The above graph shows comments from the Fed which has led so many people to have speculated they’d cut back on the bond buy back.
As of last month, the Fed Chairman has stated the bond buy back will stay in place.
For more graphs and a discussion, here’s the full article.
In my video today, I ask the question “is it time to run for the hills, or jump off the ledge?” because of the recent increased volatility and decline in the markets.
Let me give you the short answer: no.
The bond correction was an over reaction, and the most recent equity dip is not a precursor to some big decline. At least not in my opinion.
For a full discussion of this, listen to my short video where I expand on these ideas.
Hi there, it’s Mike! Friends, Mike Brady here with Generosity Wealth Management – a comprehensive full service wealth management firm right here in Boulder, Colorado and today’s conversation is about whether we ought to run for the hills, find that ledge, and jump off it, because if you’ve been watching or reading in the news recently the volatility has gone up in the unmanaged stock market indexes and some of the bond markets as well.
They’ve decreased and the answer is no, I don’t believe that we should jump off that ledge and I think this is a short term correction to what we’ve seen. Let’s talk about the unmanaged stock market indexes first and foremost; your S&Ps, your DOWs, your NASDAQ, etc. I’m going to put a chart up there on the screen and if you have been watching my videos for a long time, you’re very familiar with this chart.
It is normal for there to be intra-year decline throughout the year, going back years and years and years. Every year there is one and every time there is one, we always freak out and forget that that’s a normal thing. I think this is going to be one more of those normal things, not the beginning of some huge decline where we lose 20%, 30%, or 40%. I just don’t see that with all of my analysis.
I also think that it’s going to be relatively short lived as well. Let’s talk about the bond market. The yields have spiked up in relation to the bond prices going down. Back in June, Ben Bernanke was the chairman of the Federal Reserve. He made some comments about starting to taper off. Now of course, he’s taken all summer to kind of back off some of those comments, but essentially let’s think about money in the economy as money in a bowl.
Here, kind of look at my hands there. Money in a bowl. You could put money into it; you can take money out of it. For the last four or five years, we have definitely been putting money in there by decreasing the interest rates, but also doing a bond repurchase. What he said back in June was not that we were going to start taking money out of it, but if we’re stop one of these two levers of putting money in – the bond repurpose.
You just said we’re going to put in – we’re going to buy left backs or we’re going to put less money in. Also, there’s an accumulated amount of sums and money in there already. I think that the concern isn’t overreaction and it took us a long time to fill this bucket with a lot of money. It’s going to take a long time for that impact to really be felt. At this point, there’s money in there for banks to lend out and they are definitely doing that at this point.
I think that the reaction even on the bond market, is an overreaction and I’m not freaked out about that as well. It is important to have a portfolio that has both stock and bond components in general, being very general, each client is different of course. The percentage that you have in those two of course is specific to what you’re trying to do with your particular strategy, whether that’s your retirement strategy or growth strategy and income strategy, etc.
The mix between these two, some things zig when the others zag. At this point, the equity markets in general have that. All of the bond markets in general have been down so they’re going to compete in force this year. In previous years, it’s been reversed where the bonds have done well and maybe sometimes the stocks at various points have gone down, so having that mix makes a lot of sense.
I’m going to end this video with something that I really like from Warren Buffet. Back in 1975, he wrote a letter to Katharine Graham who owned the Washington Post and he basically told her to keep the long view, the long picture in mind. Think of it as he wrote in the letter of a thousand coin tosses and there are going to be times when five or 10 of those are going to be in a row all head or all tails.
You might see it all-sided one way or the other, but it really is just a short time frame that does go back down to normalization. It’s the same way when we’re looking at investments. We’re here for the long term. We shouldn’t get too excited if there’s a month or a quarter or even a year that’s off. They do have a tendency to go up and down in value.
The reason why we have investments, of course, is that we assume that the future value will be greater than today. Whether that future value is five years, 10 years, 20 years – whatever it might be. Otherwise, why would we have investments? Why would you put it in there? You’d put in your master of storing in the bank savings account.
It’s important to take that into consideration that there are times both five to 10 coin tosses as Warren Buffet says, but we’re really kind of looking at it as we’re building this portfolio up together that works for us with our particular risk tolerance level and what you’re really trying to achieve. You’ve heard me, ad nauseum, talk about how important the strategy and the retirement analysis and the plan is and that we then use managers and other investment vehicles in order to support that particular strategy.
Let’s keep our eye on that particular strategy.
Mike Brady, Generosity Wealth Management. There was an awful lot here in a short amount of time, but I like to make my videos short, and pithy, and to the point. Hopefully today I achieved that.
Mike Brady, 303-747-6455.
Have a great day!
I think highly of Mark Mobius, and he makes a strong argument that emerging markets, while they’ve had some correction this year, is still a great place to invest.
I happen to agree with him.
It’s a great article, so be sure to click and read.
Have Emerging Markets Gotten Oversold?
The numbers are increased mainly due to net trade numbers being positive, while personal consumption and fixed investments declined.
If the positive net trade numbers continue, this is very good for us.
The decrease in personal consumption and fixed investments is a negative for the U.S.
Stay tuned to the next publication of the numbers as I’ll be tracking the trends.
According to Lou Barnes, a local mortgage broker who is frequently quo
Right now, the 10 year treasury is around 2.775%, up about 1.1% in just a few months. However, it has stabilized.
The big question those in the investing world are asking is whether the yield will continue up, or go back down.
If you watch my video, you’ll see that I believe the yield will go back down.
But, as Lou points out, the correlation between the 10 year yield and 30 year mortgages is very clear.
The second quarter was a tough quarter, particularly at the end. Continued emphasis on government fiscal and monetary policies, both here and abroad, played havoc with bond, stock, and precious metal investors. It’s enough to make my hair turn white!
Click on my video to get my thoughts on the past quarter (over-reaction) and the upcoming one. The year is not over!
Hello, Mike Brady here with Generosity Wealth Management, a comprehensive full service wealth management firm headquartered right here in Boulder, Colorado. I’m here for my second quarter review and my third quarter preview.
I wish I could sit here in July 2013 and say that my analysis and the reason for markets going up or going down is because of the profitability of this company or that company or this sector or that sector, but really the big news both this quarter and even as we go back to the beginning of the year with the fiscal cliff and other big topics at the time, has been the intervention and the discussion of the fiscal and monetary policy of the government. In this past quarter it has also been some news out of China that really rattled things, and then of course the continuation there in Europe.
In the middle to kind of late June, Ben Bernanke, the chairman of the Federal Reserve, gave an indication that the quantitative easing would start to drop because the Fed believed that the economy is doing much better, so therefore it’s not needed the easy money that we’ve seen in the last four to five years. What happened is, the bond market really reacted, in my opinion, overreacted, and so the prices went down on bonds, which means that the yields go up. I believe that’s going to settle… there was a lot of outflows from bond funds and bond ETF or the selling of it. I think that once people kind of step back and realize that wow – I’m not going to get any yield in a money market or a CD, etc., they’re going to reengage those particular funds and ETF. So I think that it’s really an overreaction.
At the same time, the kind of equivalent to the Fed over in China, their central bank, also there was a perception that they might have policies that would lead to a credit crunch. The Chinese market went way down as well and I think that was an overreaction. While it’s painful when that stuff happened, I’m not overly concerned as we’re going forward into the third quarter.
Europe continues to be a mess. Look at my videos going back for two years. I’m just going to sound like I’m saying the same thing over and over every quarter. Europe I think is going to continue to be a real problem. This past quarter, those areas that had problems were dividend paying stocks, bonds as I already talked about, and gold. Gold and silver has lost its luster. I think that it’s overreacted on a down side, but hopefully, if you’ve been watching my videos and listening to me, you really shouldn’t have more than, if at all, each client is different – you really shouldn’t have more than 4% or 5% anyway. If it goes down a significant amount, I think it was 23% down just in this last quarter after a huge run up for a number of years, that’s going to majorly impact what you’re doing. I think that the best thing to do is to keep the big picture in mind.
I’m going to throw up on the chart there inflection points for the last 15 years. You’re going to see that where we are, the little arrow that’s pointing there. I don’t believe that we’re at the top of a crevasse waiting to go all the way and straight down. If I were to show you a graph on back all the way to 1900, you would see that these things are normal, these variations like what you’ve seen and a tough quarter that we had, the second quarter, which really took away some of the gain from the first quarter. The reason why I’m not showing you that chart is most people’s time horizon is not another 112 years, so I’m really kind of showing the last 15 years, and hopefully your time horizon is long, even if you’ve just retired, I hope you’re going to live a very long time. I think that some of the overreaction is because the concern about the Fed, but I think the Fed, they have a rosier picture than what I’ve really seen. I think some of their inflation numbers are wrong as well.
I’m going to throw another chart up there. We’re going to see historical returns by holding period. What this shows is going back to 1950, 62 years, that the longer you hold historically, the range of your return in the various sector has a tendency to start to normalize out. Diversification, I think is really key in certain quarters and years, as I talked about gold already, that really help you. This past quarter it hurt you, so therefore, hopefully you didn’t have 100% of all of your assets in gold. That’s the purpose for diversification. It’s not a panacea in that in a generally trending down market, diversified portfolio may be down as well. However, I do think that that’s a wise approach as a tactic and a technique in order to reach your particular strategy. I keep stressing that you have to know where you’re going and have a plan, etc.
A little summary here. For the second quarter gold and dividend paying stocks, the Chinese market in general, and bonds were down, but I think that it was an overreaction. I am optimistic in that regard for the third quarter. I don’t believe, as I see things right now, that the third quarter will bring forth some huge decline and we all run for the door. I do think that we’re going to continue to be in a trading range, both this year and next year. That’s why having good managers that can take advantage of that is important. I’m a little disappointed that in June, some of those managers might not have foreseen that quick or abruptly as they could, but I think it’s an overreaction. It think it’s just a blip at this particular point.
Mike Brady, Generosity Wealth Management, (303) 747-6455.
By the way, I’m having a seminar on the 16th. Give Cassidy a call at my office if you would like to attend. It’s one hour. I’m a straight to the point, this is what I think and why I think it… My attention span is not greater than an hour so I certainly can’t expect anybody else listening to me to have an attention span greater than an hour. I’ll be very sensitive to the time. (303) 747-6455. You have a wonderful day. Thanks. Bye bye.