If your portfolio isn't properly diversified, the answer is a lot, but even if you craft a diversified equity portfolio your losses can be substantial. How substantial? Most would agree than an S&P 500 index fund qualifies as a diversified portfolio, so let’s look at the maximum losses sustained on an investment in the S&P 500. In the chart below, I show the drawdowns of the S&P 500 (not counting dividends) over the last 65 years. Drawdown sounds a bit jargony for a Friday. What does it mean? A drawdown is simply the maximum loss on a portfolio or an index from the prior … [Read more...]
Archives for February 2015
Greek Drama: The Final Act?
Greece is back on the front pages of the financial press. Why is a country whose GDP is a rounding error in the $75 trillion global economy making headlines? Even at 175% of GDP, Greece’s outstanding government debt is about one-half of one percent of the world’s total. Greece made its way back into the headlines when its parliament failed to elect a new President in December, which resulted in snap elections. The snap elections were held on January 25th and the victor was the left-wing anti-austerity party Syriza, led by Alexis Tsipras (pronounced sipras). Tsipras campaigned on a … [Read more...]
40 Years is a Helluva Long-time
Cashing in on the Fed’s zero percent interest rates while the going is still good, Microsoft is issuing $10.75 billion in bonds—an increase from an originally planned $7 billion offering. With the world’s major central banks holding or promising to buy an inordinate amount of the world’s safe debt, the supply of high-grade bonds is falling short of demand. Microsoft is one of the few remaining triple-A-rated borrowers around, so investors have jumped all over the offering. Reuters has reported investor orders of $37 billion. The offering is broken into seven tranches ranging from … [Read more...]
The Monday Melee: Greenspan, Beer and Budgets
Greenspan: Political Crisis Coming What We're Reading: What Democrats and the CBO Don’t Get (The Wall Street Journal) The one percent earn the same share of income as they did under Clinton. (Greg Mankiw’s Blog) "Chelsea Clinton's Husband Suffers Massive Hedge Fund Loss On Greek Investment" (Zerohedge.com) Is the entire oil collapse all about crushing Russian control of Syria? (Zerohedge.com) "The man who brought us the lithium-ion battery at the age of 57 has an idea for a new one at 92" (Quartz) Quotable: Regulatory Uncertainty "We’ve long understood that poorly crafted laws and … [Read more...]
What are They Waiting For?
The January jobs numbers were released this morning. The monthly gain in payroll employment topped expectations by a modest amount, but there were 147,000 more job gains in November & December than originally reported. The three month moving average of private monthly payroll gains is now at a post recovery high and higher than at any point during the last economic expansion. The last time private payrolls were increasing as fast as they are today was November of 1997—over 17 years ago. Wage growth also picked up last month after falling in December. Average hourly earnings are … [Read more...]
Liftoff?
Could it be that the U.S. has finally reached a state of economic acceleration fast enough to motivate the Fed to raise rates? Cleveland Fed president Loretta Mester thinks the economy is strong enough to support “liftoff” on rates. Mester indicates her desire to see a raising of rates in the first half of 2015, though she doesn’t go so far as to aggressively pressure the FOMC. Mester said in her speech (bold emphasis ours): In response to the financial crisis and deep recession, the Federal Reserve has run an extraordinarily accommodative monetary policy to promote its goals of price … [Read more...]
Vanguard GNMA 2014/2015
Nice 52-week run by Vanguard GNMA. As of January 31, 2015 the fund had returned 5.29% over the trailing twelve months. Shares yield 2.24% today. … [Read more...]
The Monday Melee: Manufacturing Slowdown
Manufacturing Slowest in a Year The ISM Manufacturing Report on Business was released today and the pace of manufacturing acceleration pulled back to its slowest in a year, 53.5. A number above 50 indicates that manufacturing is still growing, but the closer it gets to 50 the slower the acceleration is. The 53.5 reading is the slowest acceleration in a year and follows another steep decline in December's rate. Quotable: Euro-zone Official on New Greek Government “Everybody [in the eurozone] wants a deal,” said one senior eurozone official. “But through their actions and their rhetoric, … [Read more...]