Of interest to investors who use an asset allocation strategy keyed to age and individual circumstances.
Amid Tumult, Bonds Prove Steady
OCT. 17, 2014
By JAMES B. STEWART
This weeks stock market drop and wild gyrations may have been wrenching for investors, but they cant really be called a surprise. After 27 months with no significant decline and with many valuation measures signaling caution, a chorus of pundits has been predicting a stock market pullback and higher volatility.
But along with the turmoil, there was a surprise: On Wednesday, the yield on the 10-year United States Treasury note hit 1.85 percent, its lowest level since May 2013, extending a yearlong Treasury bond market rally that almost no one predicted.
snip
The recent volatility of stocks and the unpredictability of interest rates is a potent reminder to most investors to have a diversified mix of stocks and bonds and stick to a simple asset allocation plan. What happened this week isnt unusual, and it isnt abnormal, said Francis Kinniry, a principal in Vanguards investment strategy group. Stocks are a high-risk, high-return asset.
snip
Given recent strength in the United States economy, the decline in the unemployment rate and the Feds repeated intention to tighten monetary policy over the next year, no wonder hardly anyone anticipated this years bond market rally. But there were a few lonely voices. In his list of 15 Surprises for 2014, issued in January, Douglas Kass, president of Seabreeze Partners Management (and a widely followed market pundit), predicted slowing global growth (surprise No. 1); stock prices decline (surprise No. 3); and bonds outperform stocks (surprise No. 4).
snip
Mr. Kass expects the bond rally to continue and is among those who suspect the Fed will delay raising rates. People are losing sight of the fact that the Fed hasnt raised rates since June 2006, he said. I dont see them raising rates for two or three more years. That will be another surprise for the markets.
snip
In keeping with its longstanding approach, Vanguard is urging investors to stick to a simple, low-cost asset allocation model divided between stocks and high-quality bonds and not try to time markets. Many investors make the mistake of looking at bonds as stand-alone investments with low expected returns, he said. But theyre really there to complement the equity risk. Weve looked at this in depth over long periods. And when equities are under stress, the only assets with positive returns have been very high-grade government bonds, high-quality municipals and high-grade corporate bonds. Everything else hedge funds, private equity, real estate, high-yield bonds has gone down.
More.
http://online.wsj.com/articles/rally-in-treasurys-makes-a-longstanding-bet-look-good-1413754652
Rally in Treasurys Makes a Longstanding Bet Look Good
Texass Hoisington Investment Management Has Been Wagering for More Than a Decade That Yields Will Fall
By Tom Lauricella
Oct. 19, 2014 5:37 p.m. ET
The roaring rally in government bonds has thrown Wall Street for a loop, but it comes as no surprise to a group of veteran money managers in Austin, Texas.
Van Hoisington, president of Hoisington Investment Management Co., and Lacy Hunt, its chief economist, have been wagering for more than a decade that bond yields in the U.S. will fall, thanks to rising debt that they say inhibits economic growth, retards inflation and pushes down interest rates.
In recent weeks, Hoisington, which manages $5.4 billion invested mostly in long-term U.S. Treasury securities, has looked especially prescient, as the potential for economically damaging deflation in Europe has become a serious concern for investors.
The yield on 10-year government bonds has tumbled below 1% in Germany for the first time ever and below 2% in the U.S. for the first time in more than a year, a surprisingly low level at a time of healthy employment gains in the U.S. Prices rise when yields fall.
snip
I have some stock in pfizer and Proctor and Gamble and Walmart. What do you think.? If only pfizer could come up with an ebola cure..LOL