Making Sense of Bond Yields

Volatility is a very important discussion to have with clients before they invest. In many cases clients will choose bonds over stocks because of a perceived lower level of volatility found there. Historically, that’s a fair assumption–rarely if ever in the past 20 years has a portfolio of municipal bonds represented a similar level of risk to stocks. People are also taught to buy bonds for the yield and to not pay close attention to daily fluctuations in price. Well, like a lot of other things, 2008 has changed the rules. Bond volatility combined with mark-to-market accounting rules has helped crush the daily trading prices of many bonds. It has also caused a phenomenon of highly rated bonds offering competitive yields. So, does this present an opportunity for investors? Here are a few things to know:

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Has Hank Paulson Been A Good Treasury Secretary?

Now that Hank Paulson is a lame duck, and we’ve seen the majority of his contributions as Treasury Secretary, we can begin to assess whether he has been handling the unfolding economic downturn effectively, or as some might suggest, made it worse. As is usually the case with economic policy, we can rarely determine with certainty what was a ‘correct move’ for several months if not years afterwards. My opinion is that Paulson has done an adequate job so far in terms of avoiding a deeper recession or depression, but has made some questionable moves and has been less than sensitive to the needs of Wall Street.

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Obama and Taxes: What We Can Expect

Whether or not you liked George Bush, his budgets over the past four years have consistently called for more tax cuts and extensions for expiring tax provisions which would otherwise hike taxes. Last year, Bush extended the lower marginal tax rates on ordinary income and the preferential rates on capital gains and dividend income. The goal of these tax cuts was to raise individual incomes, add jobs to the economy and lower unemployment. Well, no luck so far on reaching those goals. On Friday we learned of 240,000 more job losses last month and a national unemployment rate of 6.5%. So now the question becomes, what can we expect from President elect Obama? Lots of people on Wall Street are scared of a scenario in which Obama raises taxes shortly after getting into office presumably in the middle of a recession. Herbert Hoover did the same thing in the early 1930’s. It led to the Great Depression. Are we in a similar predicament? What can we expect over the next four years from Barack Obama in terms of taxes?

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