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.

2010-08-20 TPWC Market and Economic Update