Readings for December 23, 2013


99% of Long-Term Investing Is Doing Nothing; the Other 1% Will Change Your Life


China Cash Crunch Pushes Up Short-Term Rates

Russia Crisis Haunts Deutsche Bank’s Smith Seeing China Bust


Analysis: In banking reform, Europe zig-zags but still moves forward


Readings for December 19, 2013

Financial Markets:

It’s Only Just Begun for Emerging Markets

Monetary Policy:

Bernanke Made the Fed Clearer, More Open


EU Finance Ministers Agree on Bank Resolution System

EU Deadlock Broken as Ministers Agree to Bank Plan

Financial System:

Regulator Warns U.S. Banks on Taking Risks

Forex Traders Said to Have Colluded in Effort to Profit

Readings or December 17, 2013

Monetary Policy:

As Inflation View Shifts, the Fed Might Floor It

Key Inflation Measures Still Weak as Fed Meets


EU Banks Shrink Assets by $1.1 Trillion as Capital Ratios Rise

Financial System:

Volcker Rule Shows Its Wide Reach

Stern Words for Wall Street’s Watchdogs, From a Judge

The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?


Source:  As Inflation View Shifts, the Fed Might Floor It


Source:  Key Inflation Measures Still Weak as Fed Meets

Readings for December 16, 2013

Investor Education:

You Win By Thinking Everyone Else Is Wrong

Financial Markets:

Investors Are Hungry for U.S. Corporate Bonds

TIPS Wipeout Signals Fed Losing Fight Against Disinflation

Monetary Policy:

Tough Question for Fed: Time to Act?

Fed Taper Message Succeeds as Bonds Adjust to Economic Data


ECB Chief Urges Action on Banking Authority

Financial System:

The Volcker Rule:  How a Simple Idea to Rein In Banks Got Supersized

Pensions Make the Most of Stocks’ Surge


Source:  Tough Question for Fed: Time to Act?


Source:  Pensions Make the Most of Stocks’ Surge

Indications to Maintain Bonds in a Portfolio

People are afraid of bonds and rising interest rates, never mind that the types of bonds in a portfolio can be adjusted to accommodate almost any sort of interest rate environment.  But in investing, it’s not the snake you see that bites you but the one you don’t see.  The two articles below indicate more potential signs that the time to buy bonds is near if not now, or at least suggest one should not abandon the role of bonds in a portfolio.


Bond Mutual Funds Headed for Record Withdrawals This Year


Investors have removed $70.7 billion so far this year from bond funds, TrimTabs Investment Research said today in an e-mailed statement. Unless the trend reverses, the redemptions would surpass a record $62.5 billion that investors removed from bond mutual funds in 1994, according to TrimTabs.

Note the comparison to 1994, which proved to be an excellent time to BUY bonds since everyone was scared about rising interest rates.  Recall that the Fed was raising the Fed Funds Rates that year in response to an improving economy following the recession of 1990-91.  FWIW, the Barclay’s U.S. Aggregate Bond Index returned 11.43% in the year following its trough on May 9, 1994 according to data from Morningstar.


Performance of Stocks vs Bonds


With the S&P 500 up 23.4% and long-term US Treasuries down 10.2% over the last 200-trading days, the current performance spread between the two asset classes is above 30 percentage points.  In what has become a comparison that is increasingly looking as lopsided as matches between the Harlem Globetrotters and the Washington Generals, when people compare the two asset classes, there are very few who would pick Treasuries to win.

… While it is common for equities to outperform treasuries, the current level of outperformance is relatively uncommon. … At some point you would expect the two to revert back to their long-term historical average.

The timing of when mean reversion occurs is difficult at best.  But there is a saying for those who are not prepared for its eventuality:  “Mean reversion is a bitch!”