August 30, 2011 - Vol 5 Issue 35
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Why High-Yield Bonds Make Sense Today
By Geoff Considine, Ph.D.
None other than Gluskin Sheff's Dave Rosenberg, the widely followed analyst who was been consistently bearish in the current market cycle, said last week that high-yield bonds are 'a good place to be right now.' Recent price declines have made them attractive in the short term, and their risk-adjusted returns make them attractive to longer-term strategic investors.
What to Tell Clients Today - Ten Tips for Effective Client Communication
Given the recent market tumult, many advisors know they should be communicating with clients, but hesitate because of uncertainty about what to say and apprehension about making things worse rather than better. Here are five general guidelines for client communication in turbulent markets and five tips for crafting the message that you send today.
Scenarios for a Stock Market Bottom
A probability-based forecast for the U.S. stock market between now and 2013 can be constructed using historical relationships between stock prices, earnings and dividends. This yields a matrix of possible outcomes for the S&P 500 Index over the next two years.
Borking the Budget
It now appears that the obstreperous approach that succeeded in the Bork nomination fight is being applied to the federal budget. Instead of treating this subject with objectivity and reason, both parties have borrowed the tactics that their most radical elements have historically applied to social issues like abortion.
The Case for Active Management in a Volatile Market
It's been an eventful few weeks, to say the least. The market volatility reminds us that active investment management is more crucial than ever.
Seeking Beta in the Bond Market: Sell Long Bonds
I have updated the model described in my article, Seeking Beta in the Bond Market: A Math-driven Investment Strategy for Higher Returns. An upper switch point was generated on August 25. This indicates the beginning of a down market for bonds.
Errata and Letters to the Editor
We correct a couple of errors which appeared in our article last week, The Simplest, Safest Withdrawal Strategy. A reader also responds to that article, and two readers respond to other recent articles.
Our Most Read Article From Last Week
Few financial planning topics have garnered as much attention as safe withdrawal rates (SWRs), but a key question remains unanswered: Can retirees sustain a 4% withdrawal rate with minimal risk? With the recent introduction of 30-year TIPS, the answer is now yes.
Highlights from Market Commentaries
Below are the three most widely read commentaries during the last week:
Why Washington Urgently Needs to Break America's Negative Feedback Loop
It is tempting to dismiss all this market volatility as just irritating "noise" rather than insightful "signals". But, be very careful before you are opt for this seemingly comforting interpretation. There is a lot in play today that requires a bold response out of Washington. This is not just an American phenomenon. Europe is in a much worse situation. And, if policymakers on both sides of the Atlantic don't get their act together, they will run out of tools that have a chance of being effective circuit breakers. Things could get a lot worse before they get better.
Tags: US Europe Fiscal Policy Sovereign Debt
Why Washington Urgently Needs to Break America's Negative Feedback Loop by Mohamed A. El-Erian of PIMCO
One Number Says it All
The average annualized growth of US consumer spending over the past 14 quarters-calculated in inflation-adjusted terms from the first quarter of 2008 to the second quarter of 2011 is 0.2%. Never before in the post-WWII era have American consumers been so weak for so long. This one number encapsulates much of what is wrong today in the US-and in the global economy. The US economy-as well as the global economy-cannot get back on its feet without the American consumer. Its time to look beyond ideology-on the left and right-and frame the policy debate with that consideration in mind.
Tags: US Sovereign Debt
One Number Says it All by Stephen S. Roach of Project Syndicate
What did I think of Rick Perry's comments about Ben Bernanke? Frankly, I thought they were unfortunate. Perry suggested that monetary intervention would be "playing politics," which implies that Perry believes the Fed actually has the power to benefit the Obama Administration by improving the economy with its interventions. We certainly differ on that point. In my view, QE2 was an economically baseless attempt to distort the financial markets and force the prudent into taking risk in hopes of substituting speculation for innovation. Perry gives Bernanke far more credit than I do.
Tags: US Sovereign Debt
Whack-A-Mole by John P. Hussman of Hussman Funds