Hello Sports Fans,

I'm baaack!

As I've expected/hoped, the market finds a way to keep muddling along.  There are some substantive changes, though.  For one, the sizeable negative correlation between stocks and bonds has broken down to almost zero.  Put another way, the "fear trade" that is often discussed is not to go into bonds.  Investors seem to have lost an appetite for US treasuries at these yields.

I think this is driven by a desire to "get in front" of the market - i.e. time it, but I am not convinced this is a good idea.

I still have not seen any evidence that the economy is heating up in any way.  I think the developments are positive, but to me that only means some of the really risky scenarios are off the table, for now.  It does not mean we are going to be growing at 3-5% any time soon.  I suspect we will be in the 1-2.5% range for a while as the employment picture still remains muddy and we are undergoing a structural shift upward in efficiency.  While this will be good long term, short term, there will be higher unemployment and this will serve to temper any gains for a while.

Thus, I find myself still liking bonds at these levels.  The 10 year bonds are now somewhat attractive as well as the long end and probably have less risk.  The funds are riskier than the physical bonds because the bonds maturity is always getting shorter whereas the funds tend to stay constant.

In addition, the ETF's like MHN, JTP, VTA seem very attractive to meas they offer very high yields which will protect them if rates start rising and they are trading at discount which also helps.  Even when stocks are rallying, I would not sneeze at 7-10% pre-tax returns, so I do not understand the current price levels except under that maybe investors are going back to cash and taking risk off the table.

If that is the case, investors are woefully underinvested.  Stocks continue to perform well in the real world.  I am a believer in stocks that pay their owners and run efficiently.  There are many examples of that.  Fluctuations in the stock price don't matter to the company.  They do provide buying opportunity. Keep that in mind as things gyrate in the coming months.

The market tends to shift focus as if it had ADHD.  Remember a few months back, AAPL was gyrating 5-10% in no time based on nothing concrete.  Now, it barely moves.  Currently it is bonds that are the focus and they change by 1+% on very little.

Volatility is transitory.  Stay with solid companies and use volatility to establish good entry points.

On a side note:

Spending less is a lot easier than finding ways to earn more, so here is a link I found right on target.
I especially like the delaying a purchase advice.  It works like a charm.

URL:

http://news.morningstar.com/articlenet/article.aspx?id=603395