August 2010 Newsletter
August’s newsetter has one article on the markets describing why I believe the stock market is low. Meanwhile the bond markets are becoming overpriced and some bond asset classes already are. The typical diversified bond fund currently holds a portfolio of debt securities that are priced from 105 to as high as 111. Since at maturity bonds are all priced at 100, there is a built-in loss in almost all bond funds. The key there is to have low expenses and a relatively high interest payment. Even so, the typical bond fund has a yield to maturity of less than 3%!
The other article is about the economy. We are rebuilding from a very different kind of recession, one that is structural rather than the more common business cycle variety. At this point in a structural recovery it is normal to have a set of economic signals that would be contradictory in a business cycle recovery but are quite normal in this type of event.
Stock Market has best Month in more than a Year
July of 2010 is an example of how the U.S. stock market works. The Dow Jones Industrial Average (the Dow) oscillated up and down, often as much as 200 points in a day, and on a couple of days moved around 300 points. The Dow started the month with the print and broadcast media loudly worrying about a “double dip” recession and an accompanying decline in the markets at 9,773. It ended the month at 10,466, up 7.1%. (more…)