Yesterday ended the streak of up Tuesdays in the market while last week saw an acceleration in the the "crush anything that pays any sort of yield" theme. Treasuries, high yield bonds, preferred shares, Utilities, REITs, etc. all got killed. At this point this just seems like the weird type of dislocation that happens sometimes in markets where money just doesn't want to go anywhere except under a mattress. The uncertainty about what the Fed is going to do and when has caused interest rates to spike which complicates their exit strategy and is causing market unease about what they will do next. As long as the Fed is keeping their foot on the gas stocks are still the place to be.
Technically we see key resistance on the S&P 500 at 1648 (currently 1631) and key support at 1612. Recent action suggests that a test of 1612 is likely.
Interesting but Useless Information
Dr. Doom, Nouriel Roubini, went on CNBC the other day and actually predicted 2 years of stock gains. Interesting because he has been predicting disaster. Useless because all of his disaster predictions since the 2008 crash have been wrong and nobody can predict the market.
Recent Moves
We have rotated out of all of our fixed rate bonds---Treasuries, Preferred Shares, High Yield, and Emerging Markets. These have been replaced by Floating Rate Bonds, S&P 500, and Cash.
I Need Income From My Investments
I had an interesting conversation with a financial planner about a client who had a portfolio of short term bonds and who "needed" income and had a life expectancy of 20 years. He was wondering how to advise them. What I basically told him was this:
1. Nobody "needs" income, what they need is for their portfolio to provide the freedom to live the life they want to live.
2. It doesn't matter if their portfolio provides interest, dividends, or capital gains, it is all green. Think about it, if I give you $20 does it matter whether it is interest, dividends, or capital gains (forget about some slight differences in taxation)? No, it is still yours to spend as you want.
3. The client has $2mm in a portfolio of short term bonds that earns practically nothing, has virtually no upside potential, and has some decent downside potential. In a year like 2008 maybe that makes sense, but with the market increasing who wants an investment that earns nothing and really only has downside? Not me.
4. Life expectancy is meaningless. Ever hear the story about the statistician who drowned in water that averaged 12 inches? Medical science is making new advances all the time, what happens if you plan on someone living for 20 more years and they live for 50? Your portfolio needs to grow so that it doesn't matter how long you live. A portfolio of short term bonds is not going to cut it.
Top Holdings
1. S&P 500
2. Dividend Stocks
3. Cash
4. US Small Cap Stocks
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