David Dreman has earned a reputation as a superb contrarian investor over the past four decades. So when he writes a warning about bond investing, it’s worth reading. On the other hand, market support by central banks has been so extreme in recent years that rational investing expectations aren’t necessarily valid. The point of the article is solid, however: bonds are potentially at risk. Read here.
Today’s OPEC agreement to limit production doesn’t have me racing to get back into oil. Historically, oil output agreements by OPEC have tended to fall apart. So we’re still hunting for value. If the energy sector begins to appear attractive we’ll be all over it, if our core mutual funds haven’t bought in. Read more here.
While the stock markets are piling on gain after gain, this article is a decent yet extremely sobering read. There is ample reason to be a gentle skeptic about the current directions of our financial markets. On the other hand, there’s no compelling reason to go to cash either. The “Sweet Spot” of non-delusional investing seems to be a path of profound diversification and patience.
This morning the Dow opened at 19,000 for the first time ever. We are experiencing another lesson in the short run unpredictability of markets. Aren’t we glad we didn’t sell everything in the face of political uncertainty? Now for the ten million dollar question: will these high levels last? My thought: we don’t know. Stay diversified! Read more here.
Pension defaults will probably be BIG in about 20 years. Possible solution: get your own money into a separate account.
If you read this LA Times article, you will find additional confirmation that we face looming social unrest and political challenges concerning underfunded defined benefit pensions. It is quite possible that in a few decades we will witness pooled defined benefit pensions experiencing a “renegotiation” of benefits. For that reason, maintaining our own pensions in separate accounts such as IRA rollovers becomes even more attractive. We can’t really foretell the future, but right now the numbers aren’t adding up.
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.