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.
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 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.
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.
We got a letter this week from a client of ours, and we wanted to share a piece of it with you and our reaction, because this is a common fear and question for investors.
“I believe that U.S. cannot continue with its current debt load – no one country is big enough to bail the U.S. out once dollar is no longer the gold standard, and we’re concerned that the dollar is not strong. We are concerned about a sharply falling US dollar, and wondering if we need investment advice outside of the dollar or a safety net outside of the U.S.? ”
-A concerned client of Fabian Wealth Strategies
First off, it’s great that our clients are watching the markets and the international stage so closely. As money managers, we’re watching currency markets each and every day, and the big currencies to look at are the U.S. Dollar, Euro and Japanese Yen. Right now, the U.S. Dollar is enjoying a nice uptrend in value. There just aren’t great alternatives out there to the U.S. Dollar right now, and we have no evidence that the U.S. Dollar is declining at this time. We agree that the Federal Reserve’s bond buying actions are problematic, but it’s not adversely affecting the dollar right now. Seeing that the Japanese Yen and Euro are both engaging in similar Quantitative Easing strategies to a much greater extent than we are, and remembering that the global economy is very intertwined is helpful. There is a lot of economic stress in these areas of the world, and in order for the dollar to go down, other currencies would have to come up in value, and we don’t see that happening.
As a side note, we aren’t seeing a rapid rise in gold prices, either, which is its own form of currency. Since all currencies can’t go down at the same time, the U.S. dollar is in good shape. These are good questions and legitimate concerns, but right now we don’t see a reason to worry about the U.S. dollar.
This is a podcast summary. For more information, please listen to the entire broadcast here.
We keep hearing about bubbles in the stock market, and we want to address some of those concerns today. Three items we learned recently from Jeffrey Gundlach:
Quantitative easing not ending without negative consequences that force it to do so
Countries are debasing their currencies around the world
Global growth is slowing
Now, three items we got from Bill Gross recently:
Money is chasing risk
Bond bull market is coming to an end
Bubbles in stocks, bonds and real estate
Are there bubbles and risk out there, thanks to central bank action? Absolutely, but we think that our investors are well-prepared for the changing tides of the markets. For more information on how 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.
At the Vegas Money Show, we thought that attendance was probably 30% higher than in the past. The event was packed! It was a great time and wonderful education opportunities for investors. If you didn’t make it out to Vegas, we’ll also be at the Money Show in San Fransisco later this year, so we look forward to seeing you there.
Let’s look at the news this week: the U.S. stock market has gone straight up for the last four weeks. On average, the stock market grows 10% per year, so far in the last few months we’ve seen 15% growth. We believe that the market is euphoric and dangerously ahead of itself. For 18 Tuesdays in a row the stock market has been up, and consumer confidence is surging. There is a wealth effect going on out there, even though the economy is not truly changing for the better.
Domestically, the Obama Administration’s recent scandals: Benghazi, AP wiretapping and the IRS targeting conservative groups, have been labeled the worst week in President Obama’s five years in office. Whatever your political opinions are on these matters, it’s good practice to see how these news items affect the stock markets. So far, President Obama’s approval rating is untouched, but it’s important to keep track of these kinds of trends and news stories.
In other economic news, Wal-Mart is having a disappointing year for sales, producer prices are going down and manufacturing looks rather dim right now in the U.S. However, with the Federal Reserve’s involvement in the markets, bad news is good news, and good news is good news, so it seems as though the stock market will just keep climbing for the foreseeable future. That said, risk is high, although we do have some investment ideas for you that we’ll talking about in the days to come.
This is a podcast summary. For more information, please listen to the entire broadcast here.
