One of the wonderful things about Exchange Traded Funds is that they can provide holders with income on a monthly basis because of the variety of bonds an investor can hold in one ETF. We know that many investors are worried about bonds, even in ETF form, because of recent volatility.
However, we want to share a couple of insights from some money managers who we trust:
“I like bonds more now with prices down and yields up. Yields on the 10-year have risen by about 40 basis points in the last month… …It is a horrible time to be exiting bonds at this moment,” Jeffrey Gundlach said. (Read more here.)
“In 1980, the Federal Reserve, led by Paul Volcker, tightened the quantitative noose to tame double-digit inflation, fueling an unprecedented tailwind for bond prices. Thirty years later we find ourselves at the other extreme, as central banks print money in the trillions of dollars to stimulate economic growth, and inflation is abnormally low. While we are not likely to see a repeat of that type of bull market any time soon, we also do not believe we are at the beginning of a bear market for bonds. Rather, what we’re seeing is the continuation – and acceleration, in some respects – of the de-levering process, a key distinction that may be getting lost in some of the noise over the past few weeks. The Fed, the Bank of England, and now the Bank of Japan have all committed to holding their easing stance until growth targets are hit. We don’t see the Fed raising rates in a meaningful way for at least the next few years,” Bill Gross said. (Read more here.)
Our bottom line is that defensiveness is a good idea, and it’s wise to watch these sectors closely. However, fear and overly risky allocations are never good investments, so be careful out there.
This is a podcast summary. For the full broadcast, click here.
Don’t forget that the San Fransisco Money Show is coming up in August, Doug will be presenting and we are very excited about our favorite money show of the year.
There is a Federal Reserve open market committee meeting this week. This means some volatility, but we are hoping for clarity and direction for the future of Quantitative Easing and other Federal Reserve policies.
Abroad, watch these international headlines in the days/weeks to come (none of which are affecting the markets in a severe way as of now, but important to keep in mind):
NSA and Snowden
Conflict in Syria
Unrest in Turkey
Weak emerging market currencies, equities and bonds
Weakness in Chinese market
Usually, in normal times, all of the financial markets around the world go up or down at the same time. As we all know, however, these are not normal times and there’s a lot of unusual market action out there. Emerging markets, China and other seemingly distant markets do matter for our portfolios, and we need to pay attention to them.
This is a podcast summary. For the full broadcast, click here.
Central banks around the world are holding interest rates down and hoping that easy money policies will grow the economy. Unfortunately, most of the growth is happening in the U.S. and China, and other central banks are starting to question some of this action.
The emerging markets are not participating in this, and it’s an interesting sector of the world to watch as our markets depend largely on political central bank action.
There are a lot of scandals in Washington D.C. right now: Benghazi, AP, IRS and NSA. The environment when we look at Washington right now is pretty ugly, but President Obama still has a 48% approval rating. There is a definite correlation between stock market trends and the President’s approval rating, and that will be interesting to watch in the months ahead.
When we look at Washington, we are looking at the President’s approval rating, Treasury bonds, commodity prices, economic conditions and the U.S. dollar. So far there’s nothing here that is a red flag for investors. These scandals are troubling, but they are not spilling into the bond, stock, currency markets or economy at this time.
In the months to come, we believe that we will see significant drags on the economy from higher taxes and higher health insurance rates because of Obamacare. This is something significant to watch, although we don’t see it as a serious problem today.
This is a podcast summary. For more information, please listen to the entire broadcast here.
Over the past few weeks, we’ve gotten a lot of emails asking our opinions on the bond market. We’ve recently a large change in treasury bonds, BOND (one of the bond ETFs that we recommend) has been down, and high-yield and emerging market bonds are also down right now.
We are reducing exposure to bonds in general for most of our clients. We’re raising cash and looking for opportunity as the bond market changes. Managing risk is very important to us, and we want to be prepared for volatility and opportunities.
Here are our rules of thumb for analyzing your bond exposure:
Reduce risk
Look closely at portfolio and analyze it for security, allocation
Maintain exposure to short-duration bond funds
Exercise patience
For more information on how we see these changing markets, or to become a Fabian Wealth Strategies investment client, please call our offices at 800-391-1118.
This is a podcast summary. For more information, please listen to the entire broadcast here.
See Doug present live August 14-17 at the San Fransisco Money Show. It’s located at the Market Street Marriot in San Fransisco, and Doug will be teaching a workshop on “Income investing and Exchange Traded Funds”, so look for more information on that in the weeks to come.
Last week in the markets: the domestic economic news was a mixed bag, with weaker economic data and nervousness about the Federal Reserve’s potential slowing of Quantitative Easing. However, we did see a bright jobs report, and so far it looks like we’re in a sideways pattern in the markets. High-yield continues to be weak, and what’s really unusual is how poorly the emerging markets are performing.
Opportunities to keep on your investment radar: Japan looks like the best equity opportunity out there with a nice correction happening right now. The U.S. markets have not corrected enough for us to get excited about them as an opportunity yet, but we are watching closely. We are seeing corrections in high-yield bonds, which we are keeping an eye on – and we might get some opportunities in dividend plays as well, depending on what happens with interest rates in the weeks to come.
Stay tuned to our podcast, blog and video update for more information as we watch the markets for investment opportunities, warning signs and new options for your portfolio.
We wanted to bring a company to your attention: First Trust company, based in Chicago. They were in our offices last week and we talked about their ETF offerings. They only really focus on investment advisers, and don’t do retail ads like you might have seen from Charles Schwab or iShares. A couple of their Exchange Traded Fund ticker symbols to watch are:
FCG – 25 natural gas equities
FDN – internet and technology
FVD – value line dividend ETF
We’re going to be talking a lot more about these ETFs and First Trust funds in the weeks ahead, but we wanted to put it on your radar for right now. If you have any questions about these funds or other investment ideas, please email us at askdoug(at)dougfabian(dot)com, or tune into our podcast for more detailed information.
We need to watch what is happening very closely out there, as the stock market drops. We are expecting a significant correction, and we might be seeing that now.
Interest rates are going up a bit, and this means that we need to watch the bond market very closely. We also need to keep tabs on the employment, housing and other economic numbers that may tell us more about what the markets will do going forward.
We haven’t had much reaction in high-yield bonds until last week, and it looks like there is some risk there. We don’t usually own long-term bonds, but the most recent volatility makes it even more clear that investors need to be ready to make adjustments.
For your portfolios, look closely at what you own in the bond market, and get ready to move on those if necessary. Don’t get complacent or allow yourself to panic, but make smart investing choices based on good information.
As we’ve said before, entry point reveals whether your investments are safe or not – so watch these trends and be alert to opportunities and warning signs. We might be seeing a “reset” in the financial markets right now, so keep an eye on these numbers.
Last week in the U.S., we saw that consumer confidence is strong, housing prices are up; we saw more evidence of good economic news and higher interest rates. Amazingly enough, the margin debt (people who are borrowing money to buy stocks) is at an all-time high in the U.S. as well.
But later in the week, markets got nervous about the correction in the Japanese market and Central Bank policies (Quantitative Easing) and so we saw a correction. Some of the stronger, safer sectors of the market (energy, healthcare) got sold off so that was interesting to see. International markets were down much more than the U.S. market, so it’s clear that the U.S. is somewhere that global investors are buying as well. Remember that ETFs enable investors from all over the world to invest anywhere in the world, and are a great tool as you watch the global markets.
We saw some stress in the bond market as well – good economic news equate to higher interest rates, which tends to move investors back to stocks.
There’s no bigger experiment in the central banks then Japan‘s monetary policy and aggressive Quantitative Easing program. When interest rates go up, everyone gets nervous, because investors start to wonder if Japan can continue to suppress their currency and keep interest rates low. This doesn’t mean that these central bank policies are failing, but it is definitely something to watch as we invest in the global market.
We’re viewing the correction in Japanese equities as a potential opportunity, and we think that this could be a great place for investors. Remember that markets are not logical, they are psychological, and we are seeing an emotional moment right now in the Japanese market – not necessarily a foundational market problem.
For more information on how we see these changing markets, or to become a Fabian Wealth Strategies investment client, please call our offices at 800-391-1118.
This is a podcast summary. For more information, please listen to the entire broadcast here.
