An impressive number of stocks are hitting their 52-week and 2010 year highs. Stocks like Kraft, Philip Morris, Lubrizol, Anheuser Busch and Clorox, Last night Cramer suggested that this meant the rally was for real, and going higher. He’s probably right. By firing all those people, business is now much more profitable.
My liquid portfolio is now 33% cash, 20% equities and 46% munis. For the first time this year, I’m actually making a little money on equities. I’m looking to to gingerly buy a little more.
However!. This chart landed on my desk last night with these words:
You probably already knew that stocks are down for the decade, but here’s what you might not have realized: every other asset class you can imagine is up during the same time period.
That includes not only fixed income, but commodities and even real estate.
David Rosenberg of Gluskin-Sheff provides the classic chart.
And this came from a group called The Vick/Cho Group at Morgan Stanley Smith Barney in Santa Rosa, CA:
Yields on fixed income investments are or at or near historic lows. When interest rates begin to rise, fixed income investments may face volatility and loss. The media often speaks of a “bond bubble”. The thinking is that if all investors put their money into one area of the market a negative change will result in those same investors fleeing that market. Prices fall when there are more sellers than buyers. Will an eventual rise in interest rates result in a “Bear” market for bonds?
Vanguard published a very informative report this July (“Risk of loss: Should investors shift from bonds because of the prospect of rising rates?”). A bear market for stocks is a decline of 20%. What is the percentage loss then for a bond bear market?
In the Vanguard July 2010 report for example the worst 12-month return for U.S. bonds since 1926 was – 9.2%, while the worst 12-month return for U.S. stocks was – 67.6% (12 months ended June 1932). The worst calendar year for the broad bond market was 1994, when due to an unexpected upward shift in interest rates; the bond market returned a negative 2.9%. Contrast this to the experience of stock investors in 2008, when the Standard & Poors 500 Index lost more than – 2.9% in 27 individual trading days.
The key difference between stock and bond valuations and risk lies in the fact that bonds reflect a defined income stream and return of principal at maturity. As a result of this dependence on income, bonds are uniquely affected by movements in interest rates. Rising rates lead to higher yields and lower prices (think of a see-saw when rates go up, the value of the bond goes down). Stocks, on the other hand, have two metrics at work instead of one. Stocks are driven by both earnings and prices. Price declines for stocks do not mean that earnings cannot decline as well. The decline could lead to no price improvement for stocks during or after a bear market. The bond market continues to make payments during and after the bear market modifying the loss.
The conclusion of the Vanguard report does an analysis of the 3-month Treasury bill and the 20-year Treasury bond with interest rates rising 2% and 4%. The analysis measures the impact on bonds during that environment and the subsequent 12-month return. Their conclusion: “However, even after accounting for inflation, returns for the 12 months following the rate increases were positive, particularly when long-term rates rise. And by diversifying asset class exposure, balanced investors not only weathered the rising rate environment, in both nominal and real terms, but also enjoyed significantly positive returns following the event.”
Re-order reminder. What a great idea. I bought some boxes from Uline. Their web site asked if, and when I’d like an emailed reminder to re-order.
Some online companies remember what I ordered last time and when I’m there ordering again, they ask if I’d like to replenish? Staples does this. But they don’t send me reminders.
Some online companies remember what’s in my Checkout basket. Amazon does this.
Some companies remember me (and my credit card) for next time.
Most companies, however, erase all knowledge of me if when I leave their web site.
Some companies use images instead of text, and Flash instead of images. This makes copying their products into emails for approval by the wife or by the purchasing committee ultra-difficult.
Your company has a web site. I bet it could be improved.
France is outlawing the burqa.
From The Huffington Post:
PARIS — The French Senate on Tuesday overwhelmingly passed a bill banning the burqa-style Islamic veil on public streets and other places, a measure that affects less than 2,000 women but that has been widely seen as a symbolic defense of French values.
The Senate voted 246 to 1 in favor of the bill in a final step toward making the ban a law – though it now must pass muster with France’s constitutional watchdog. The bill was overwhelmingly passed in July in the lower house, the National Assembly.
I’ve seen a burqa-ed lady only once. It was Roosevelt Island, New York City. Everything she wore was black. She wore even black gloves. She was sightseeing. I did a double take. Mini-skirts yes. Burquas no. I was freaked.
I asked her male companion, “What’s with the burqa?”
He answered, “She just arrived. She’ll stop wearing it in about a week.”
I bet New York doesn’t even have a law about wearing clothes on the street. This guy makes a living parading around Times Square as The Naked Cowboy and posing for tourist photos. I’ve never heard him play the guitar. I bet he can’t.
It’s nice to have fans. Remember yesterday’s piece about women and how they’re better than men at business. They understand customer service. They understand men better than men do. And they can pick trends long before men, etc. Anyway I received this charming email from a reader:
Harry,
I just got done reading your blog from today. I am simply amazed at how rich you have become because you are an absolute complete total moron. Women should be home cleaning, cooking and tending to the children. Women should also not be allowed to vote. What a wonderful world that would be. And believe me someday, maybe not in our lifetimes, but in the not too distant future things will return to that.
Also just what the hell do you know about engineering and starting an engineering business?…….the answer would be not a god dam fucking thing…..you moron.
Your conservative friend,
Dennis
I don’t make this stuff up. I can’t.
Harry Newton who wonders why CNBC puts Larry Summers on TV. The man nearly bankrupted Harvard. He reminds me of all the bad jokes about economists: Economics is called the dismal science. It is the only “science” in which it is impossible to conduct a controlled experiment. The standing joke is that an economist is someone who doesn’t have the personality to become an accountant. There is also a theory that God invented economists to make weather forecasters and astrologers look good. Economists are also incredibly good at predicting the past. People claim “If you laid every economist in the world end to end, it would not be a bad thing.”
Another variation, “If all the economists in the world were laid end to end, they still wouldn’t reach a conclusion. And the final one is the good news that economists were able to predict 12 out of the last 5 recessions.
There are also three types of economists: Those who can count, and those who can’t.
On the first day God created the sun; the Devil countered and created sunburn. On the second day God created sex; the Devil countered with marriage. On the third day God created an economist. This was a tough one for the Devil, but in the end and after much thought he created a second economist.
When I read Dennis' note I read it as snark, no?
meh…. stocks hitting 52-week highs… lots of ETFs and closed end funds holding bonds, which are distorting those numbers.
I do not agree with his second paragraph but otherwise: Hooray for Dennis!