I thought this would be a good time to refocus any of my readers out there who may be getting distracted by the recent market decline. For the majority of investors, market volatility should either be ignored, or treated as an opportunity to add to your portfolio at “sale” prices. Even for those of you who are retired and may be taking occasional distributions to supplement your other income sources, there is likely no need to sell positions right now to raise cash. Doing so will likely be a regrettable decision, even if the market moves lower before it eventually trades higher. Well-built, diversified portfolios, should be able to withstand prolonged periods of market volatility, just as they always have in the past.
Below are some headlines which have been moving the markets this week. The articles highlighted below are provided by First Allied Asset Management. I’m not sure how many of you did “Black Friday” shopping last week but I can tell you the malls were dead around Long Island, New York. It was much quieter than years past and from what I understand, Cyber Monday was somewhat disappointing as well. On the issue of gas prices, I feel great about the $15 I’ve been saving each time I fill up my car. The price is finally hitting that $3 point on Long Island which is well below the $4.30 per gallon which we were paying just a few months ago. This should create some additional household saving and spending as gas is a major expense for people between heating their homes, their businesses, and operating automobiles. Continue reading →
I find the entire debate surrounding economic interest rates to be highly significant at the moment. What is supposed to be a policy tool used by the Federal Reserve to contain inflation and occasionally encourage either economic expansion or contraction has turned into a drug which our economy is gradually becoming immune to. The debate over interest rates is currently taking place at high level institutions such as the Federal Reserve who understand that if they wait too long, the drug can have serious consequences. The debate is also taking place across America where portfolio values and real estate prices have been on the rise, giving people the satisfaction of passively achieved wealth. That satisfaction, however, is partially masked by the concern of bubbles and whether those asset prices may come back down at some point soon. Continue reading →
2014 is looking smooth right now for stock and bond investors. The year didn’t start off that way with a fairly steep decline in February, but like all the dips of 2013, it was ultimately another buying opportunity for those able to look past the noise. Just this past Wednesday, Janet Yellen reiterated the Federal Reserve’s intent to end quantitative easing by this Fall – removing the economy’s training wheels – and even talked about reducing the economy’s longer term “target interest rate” to 3.75% from 4.00%. That’s good news for stocks and housing, and hopefully for the unemployed as well.
Below is a list of reading which may shed some light on topics which have been moving the market. As can be expected, these articles cover the Fed, China, and incoming economic data. Some believe the market volatility over the past few weeks is primarily the result of tensions taking place in Russia, but I feel that its more of a normal reaction to a strong 2013 for stocks.
It’s hard not to notice the slamming endured by the municipal bond market over the past few months. Many advisors discussed with clients a scenario in which bond pricing would gradually decline as interest rates gradually moved up. The reality was that the 10-year Treasury yield jumped over a full percent from May to June and municipal bond prices plummeted quickly. Fund investors who don’t hold bonds till maturity likely felt the pain even worse as high levels of redemptions combined with lower prices caused some municipal funds to drop 10% or more, particularly those that own longer-dated bonds. Factor in the Detroit bond crisis and cover story by Baron’s a few weeks ago slamming Puerto Rico and the picture for municipal bonds becomes even bleaker. But savvy investors must always be tracking struggling asset classes to find the point at which value starts to present itself.
This post includes a list of recent articles which are suggested reading from First Allied Asset Management, my broker/dealer firm. You will find a link to each article followed by a brief synposis of what the article is about. If these headlines and others don’t look all that optimistic, that would certainly be a reflection of the current economy and investor sentiment.
Part of what is allowing the Federal Reserve to continue promising an endless period of low interest rates is the fact that – or at least they claim – we aren’t yet experiencing any inflation here in the US. I get the logic: the big pitfall of keeping rates so low for so long is inflation but with an economy that is barely growing, we can ignore inflation for now (or even cry deflation) and continue the path to devaluing the dollar for greater short-term economic benefits. Perhaps the reason why Bernanke isn’t so concerned is that if banks actually start deploying capital at some point the Fed should be able to drain liquidity fast enough to cut inflation before it became a serious problem. However, whether or not the Fed can actually do that is a much bigger question mark than some people realize.
This post from The Wall Street Journal’s The Source blog provides a brief overview of the current natural gas production boom in the U.S. and why Europe is unlikely to benefit from it any time soon. In short, the infrastructure necessary to export the gas will take several years at a minimum to build out and environmental concerns are likely to keep a similar production boom from occurring in Europe. The inability to export is likely to keep domestic natural gas prices depressed for the foreseeable future. “In the U.K. last week, politicians hailed the good news as utilities cut a meager 5 percent from their customers’ sky-high gas bills. Meanwhile, in the U.S., natural gas has become so abundant and the price so low that a company in Texas was burning the stuff off as a waste product.”
The U.S. Labor Department reported on Friday that the U.S. economy added 120,000 jobs in November, roughly in line with expectations. The economy has now produced 100,000 or more jobs five months in a row – the first time that has happened since April 2006. But to make sense of jobs data, it’s important to understand the differences between the two main data sets, both of which can be “noisy” and subject to some pretty substantial revisions and adjustment factors. The number of jobs created or lost is revealed by the nonfarm payroll report, which is a survey of employers.