Bill Gross is famous for decades of accurate bond market calls, and he predicted the the emergence of our “new normal” low return era. In fact he named it. Recently he’s also been wrong about the direction of interest rates, and he has a personal reputation as a bit of a diva. Considering all this, when he speaks or writes about our current political environment, we have to admit that he’s more informed than most, and worth consideration. Disclosure: we own Janus bond funds. Read his recent article here.
And the bond markets are recoiling in terror. After Donald Trump’s election as president we have seen interest rates rising implacably. In the long run this is probably healthy, since fully-functioning capital markets optimize when interest rates are set by supply and demand, not Federal Reserve diktat. If interest rates continue to rise, the bond markets will register solid losses in the coming year, especially in the long end of the curve. Read about the carnage here.
However, should a stock market decline emerge, then there’s likely to be a snap back in bond prices due to a flight to safety. Totally cashing out of bonds is probably not necessary at this point.
Our current plan is to wait and watch, and seek opportunities in both the bond and stock markets. I’m also preparing a “hail Mary” plan for a sudden interest rate shock. That’s certainly not necessary now.
Last night at 11 PM the S&P 500 stock market futures were down 800 points in expectation of a debacle in the financial markets, stemming from the uncertainty created by Donald Trump’s victory in the presidential election. I came to work early expecting chaos. Surprise! Markets are largely up, while interest rates have slightly increased and gold is up slightly. I am guessing that investors looked at the real data and decided that the immediate risks were not as great as imagined.
What IS up is biotech and health care, and we have positions in both. So we are enjoying and benefiting from that.
It’s probable that volatility will continue until people develop a clearer view of how a Trump presidency is going to work.
Calmness is a virtue.
…Is that it’s a paper cut. Most days the market has barely declined at all. We don’t know what will happen. So far, not much.
To prevent becoming too concerned about day-to-day price volatility, check out this ultra-long stock market chart here.
Fascinating! Investing works. Stay the course…even if it gets a bit bumpy.
Check out this report. I’m reading this as mild price deflation. Once the dust clears we’ll look for bargains in food production. I’m also expecting that at some point soon we should be able to invest in legal marijuana farming via a mutual fund. At the moment, the bargains aren’t there. Yet.
Last week, we attended Charles Schwab & Co. Inc.’s IMPACT investment conference. My perception was that the “consensus” opinion by experts there was for very low returns to all generic investment classes for the next decade. We should keep in mind that the “consensus” is often wrong. Now I’m watching overwhelming news which indicates that whoever is elected President next week is likely to have a very tumultuous four year term, complete with possible violence and impeachment. If Wikileaks is correct, then our system of government is indeed corrupt. What this means for our investment plans for the next four years is impossible to decipher. My plan is prepare deeply and steer a middle course. It is entirely possible that we might find bargains in all this, and it is also quite possible, as is so often the case, that we will all muddle by, and in fact find diamonds in what seems to be a gigantic steaming manure pile of social unrest. With shovels in hand, on we go.
One of my fascinations is how to pass on wealth between generations. It amazes me how people can succeed magnificently at wealth transfers, and can even prepare the following generations for wealth which they themselves never enjoyed. Or sometimes they can blow things to shreds. Life is a lot harder than we would like to realize, and providing for future generations in terms of education and actual wealth is a profound blessing. There’s a lot to learn from the European and Asian families who have managed this successfully for centuries. Read here what billionaires do.
Here’s today’s thought to ponder. Stocks appear very overvalued. In classic financial markets, this matters.In today’s markets, this may not matter. In our brave new world, the support of central banks tends to distort valuations as indicators. However, there’s no harm in being cautious. Read the article here.