The yield on 10-year Greek bonds were 10% last week. That’s 2% points higher than they were on May 22. Remember, bond prices fall when interest rates rise. Bond price sensitivity is measured by duration. As a general rule of thumb for every 1% increase in rates the principal value drops in percentage terms by the duration. For example, a 1% increase in interest rates would be about a 10% loss in value on a 10-year zero coupon bond. That’s how rate volatility is wreaking havoc on Greek bond investors. … [Read more...]
Prices Down, Interest Rates Up
Yesterday the price for the 10-year Treasury note ticked down 15/32 to yield 2.212% while the 30-year fell 25/32 to yield 3.367%. Investors reaching out on the yield curve should not be surprised by this downward price action. The Treasury market paid no attention to Standard & Poor’s upward revision, to stable, for the U.S. credit rating. I’d stay away from Treasuries altogether. As Carolyn Cui at The Wall Street Journal reports: [expand title="Click here to read more."] Treasuries held losses despite Standard & Poor's move to raise its outlook on the U.S. credit rating, as the … [Read more...]
Retired Teachers Pay High Fees to Lag the Market
I’d get teacher pensions out of hedge-funds altogether. Retired teachers would be aghast if they truly understood how their money is being “invested”. [expand title="Click here to read more."] Amid questions and criticisms regarding the State of Rhode Island's hedge-fund investments, Rhode Island General Treasurer Gina M. Raimondo has released a breakdown of fees. In documents released to The Providence Journal and a table posted on the treasurer's website, Raimondo reports that the state paid $15.9 million in fees last year on Rhode Island's $1 billion hedge-fund portfolio. That … [Read more...]
Investing in the Dark
You can be sure there’ll be a price to pay for Federal Reserve Chairman Ben Bernanke’s easy-money policies. Retirees are already feeling the hurt with his 0% interest rates. There was a time, not too long ago, when savers and retirees could depend on Treasury bonds. Not anymore. [expand title="Click here to read more."] Not only is the Fed keeping rates on Treasuries near zero, it’s also creating a false sense of demand with the $1.8 trillion it’s hoarding on its books. Simply put, the higher the demand for Treasuries, the higher the price, which for bonds means the lower the yield. So now … [Read more...]
This Global Index Is up 27% within Six Months
You need to make sure you have a safe harbor for your money. Yes, I know it’s been a good year for the market, but what is supporting it? Take a look at the Baltic Dry Index. [expand title="Click here to read more."]It shows the cost of transporting bulk goods across the world’s oceans. It’s up 27% YTD as shown in the first chart, but down 93% compared to its May 2008 peak. How much of this year’s gain is thanks to the money printing by the Federal Reserve? $85 billion a month goes a long way to keep markets afloat. Hedge funds loved trading the BDI until the crash in 2008. It’s hard to … [Read more...]
Guaranteed Income for Life!
Have you gone to a free dinner yet to hear about the lifetime income guarantee? Unfortunately, a client of mine did. He and his wife were lured in by the free dinner and listened to a presentation on annuities. Afterward, they talked to the guy and agreed to meet with him at their home the next week. [expand title="Click here to read more."] My client called me the day before the meeting with some reservations. He confessed what they had done. And he felt uneasy about the meeting. I educated him on the drawbacks of annuities and armed him with questions for the sales guy. Clearly, the … [Read more...]
Stocks to Get You through a Historic Collapse
How would you like a 30-year partnership with the U.S. government where you get paid 2.82% a year? Ugly, right? Well, that’s the current yield on the 30-year Treasury bond. As you can see, it doesn’t get much worse than that. [expand title="Click here to read more."] For your trust and generosity, the government “guarantees” you a yield of 2.82% while it gets to use your hard-earned money to pile on more debt, devalue your existing dollars, and/or tax you more—take your pick. A better deal might be to partner with blue-chip stocks that pay you a dividend of around 4% a year. … [Read more...]
Mini Flash Crash
Here’s a snapshot of last week’s mini flash crash initiated by a false tweet. Trading programs scour social media and then trade on the information. See the early afternoon crack in the market? It may have ruined the back nine for the poor guy with the executed stop loss that never got back in. It’s yet another reason why I don’t like program trading or stop losses. [expand title="Click here to read more."] [/expand] … [Read more...]
Higher Medical Bills Hidden by Low Inflation
You can’t buy a break. Workers are making less. Retirees on a fixed income are getting squat from T-bills. And the government statistics on inflation hide some pretty important data. Let’s take a look. [expand title="Click here to read more."]In the latest release on the Consumer Price Index, the headline news is that inflation isn’t a problem. Well, that depends on who you are. Headlines often have nothing to do with you. One line item that caught my eye was the 3.9% 12-month increase in medical care services. That’s a pretty important cost to retirees, don’t you think? When T-bills … [Read more...]
401(k): 411 or 911?
There’s talk about capping 401(k) savings at $3 million. What’s disturbing is the assumption behind this proposal: that it takes $3 million in savings to generate an annual income of $205,000. That’s a pipe dream. [expand title="Click here to read more."] I’m sorry, but to get $205,000 per year, you’re going to need much more money than $3 million. At a 4% draw, $3 million would kick off $120,000 per year. For my money, I wouldn’t recommend socking away a penny under $5,125,000 to guarantee $205,000 a year. But this gives you an inside look at how little attention is paid to prudent money … [Read more...]
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