With commodities prices surging and inflation pressures heating up in certain sectors of the economy, the financial press is loaded with articles offering advice on how to protect your portfolio from inflation. One of the more common recommendations is to buy Treasury inflation-protected securities (TIPS). This is a strategy we advise against. It isn’t that we are averse to TIPS. But the problem with buying TIPS today is that yields are far too low and durations on many TIPS and TIPS funds are too long. By example, the yield on the Vanguard Inflation-Protected Securities fund is only … [Read more...]
15%-20% Losses Ahead for Munis
Jeff Gundlach, Chief Investment Officer of DoubeLine Capital, is looking for losses of another 15%-20% in muni-bonds. Barron’s ran a cover story on Gundlach a few weeks back. The title of the piece was “The New Bond King.” Gundlach made a name for himself investing in mortgage-backed securities at TCW. After a falling out with TCW management, he started DoubleLine Capital. In the Barron’s piece, Gundlach comes off as arrogant and egotistical. Check out this introduction from Barron’s. In the course of several interviews at the Los Angeles headquarters of his new investment firm, DoubleLine … [Read more...]
An 87% Win Rate
The bull market in stocks passed the two-year mark this week. From its low on March 9, 2009, the S&P 500 is up 100%—the fastest 100% gain since the 1930s. On a total-return basis, the S&P 500 is still 9% below its all-time high, but the index has just about recovered all of its losses since year-end 2007. How has your portfolio performed since year-end 2007? Are you back to even, or did the extreme volatility in stocks get the better of you? Having recently updated the performance data for Young Research’s Global Investment Strategy (GIS), I thought you may be interested to learn … [Read more...]
Bullish for Main Street, Bearish for Wall Street
Lots of new data on labor market came out this week. I want to run through a few charts on the more important data points. First is the February ISM manufacturing index. The employment component of the manufacturing index surged to its highest level in almost four decades. The last time hiring intentions in the manufacturing sector were this strong was in 1973. The employment component of the non-manufacturing sector was also strong. My chart shows that non-manufacturing employment intentions reached their highest level since 2006. Jobless claims also improved more than expected … [Read more...]
Saudi Stocks Plunge
Are investors in Saudi Arabia overreacting to geopolitical turmoil in the region or do they know something we don’t? If the Saudis start a revolt, $100 oil will look cheap. U.S. investors might consider giving the price action in Saudi Arabia a bit more weight. … [Read more...]
The Fed vs. the ECB
I wouldn’t trade the U.S. dollar for the structurally flawed euro, at least not yet, but I would gladly trade Ben Bernanke for the more vigilant European Central Bank (ECB) President Jean-Claude Trichet. Take a look at the contrasting views on inflation in the statements below. It should be clear after reading this post which central banker would make a better custodian of the value of the dollar. The first is from Bernanke’s prepared remarks in the Fed’s semi-annual monetary policy report to Congress. Emphasis is mine. The rate of pass-through from commodity price increases to broad … [Read more...]
The Danger Zone
With geopolitical turmoil spreading to key oil-producing countries in the Middle East and Africa, oil prices have spiked in the last two weeks. West Texas Intermediate, the key U.S. benchmark, is now trading near $96 per barrel. Brent Crude, the European benchmark, is trading north of $110 per barrel. The increasing risk of an oil price shock has apparently caught many investors off guard. One would have thought that revolutions in Tunisia and Egypt, as well as protests in Yemen, Bahrain, and Algeria, would have alerted investors to the growing risk of a price shock, but they didn’t. The … [Read more...]
Is the Dollar Losing its Safe-Haven Status?
In times of geopolitical upheaval, investors traditionally flee to perceived safe-haven assets. Historically, the dollar has been considered a safe-haven. You can see this trend in my chart below. The chart compares the VIX Index (a.k.a the Fear Index), which is a measure of investor risk aversion in equity markets, to the dollar index. Over recent years, increases in the Fear Index have been highly directionally correlated with the dollar index. But the most recent spike in the Fear Index has been accompanied by a falling dollar index. The fear index hasn’t yet spiked to levels comparable to … [Read more...]
The Money Flood Market
In case you still thought stock prices were advancing on improving economic growth, take a gander at this puppy. The grey line is the Fed’s securities holdings. You know – all the Treasuries (and MBS) the Fed is buying from Wall Street with freshly printed money. The black line is the S&P 500. Quite a correlation wouldn’t you say? The question that savvy investors should be asking themselves is, “What happens when the Fed stops buying bonds in June?” It could be an unpleasant summer for the unprepared. … [Read more...]
Home Prices Slide in December
The S&P/Case-Shiller Home Price Indices for December were released this morning. Home prices continued their decline in December, falling .4%. In the fourth quarter, home prices fell 1.9% and for the 12-month period ending in December, home prices declined 2.4%. After two home buyer tax credits, multiple foreclosure modification programs, and trillions in support from the Fed, it appears that we have only managed to delay the ultimate bottom in home prices. Home prices are now much closer to a bottom than to the top, but that doesn’t offer much comfort to the homeowners in Las Vegas, … [Read more...]
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