The Fed’s Inflation Problem

Most people think inflation is bad on its face. But one school of economic thought holds that a little inflation is a good thing, if it is confined to assets like stocks and real estate. But if it spills over to the supermarket or the gas station, no one is an inflation fan. Our central bank’s policy is to goose asset prices, thus getting the sluggish economy finally moving. Trouble is, that kind of precision is a tall order.

Corporate Bonds: Why Bother?

A standard investing precept: Bonds add ballast to your portfolio, buffering it from harsh economic times, when stocks tank. But most don’t recognize that there are bonds and there are bonds. From a total portfolio perspective, corporate bonds don’t give you any better performance than Treasury securities, and corporate-leaning portfolios do worse in downturns than Treasury-laden ones.

You Call That Tapering?

On the surface, the Federal Reserve appears to be diminishing its overwhelming presence in Treasury and mortgage-backed securities, by pulling back on its bond-buying program. But it isn’t. Little-appreciated fact: While it may be tapering down the purchases, it still is sitting on a huge pile of bonds that it isn’t drawing down.

Bonds and Higher Rates

So where is the big, long-anticipated yield hike in the benchmark 10-year Treasury? It has yet to materialize. The outlook for bonds is that huge swings in their value are unlikely, regardless of what happens to interest rates.

Fed Stimulus to Stick Around

Don’t expect the Fed to really back off its plan to taper down its stimulus efforts. Too many people still are out of work, and improvement is glacial, at best.

How Bonds Boost Stocks

Sometimes, forces that don’t command a lot of attention are important factors – most often undergirded by bonds. Cash that is raised in the corporate bond market often finds its way into the stock market via stock buybacks, dividends and acquisitions.

Emerging Market Debt Woes

The emerging markets are destined to eclipse the U.S. and other economically mature nations, right? Not necessarily. Too often, debt feeds their growth. This is not the best nutrient because it imposes a burden. But Corporate America is sitting on a mountain of cash that it can deploy, so U.S. companies appear to be a better investment bet.

Why Bother With Bonds?

This winter’s stock downturn sent a lot of investors scurrying out of equities and back to bonds. Going forward, whenever the stock market dips, realize that bonds’ sunny days are gone. Even modest inflation will eat them away over time. So don’t go there.

Your Returns Trail the Market?

Remember that, before its recent winter downturns, whole segments of the market spiked last year. But your 2013 returns don’t reflect that. Should you worry? Not at all. What should you do about it? Nothing, other than re-balance your portfolio back to the original allocation you want.

We’re well into a new year and all 2013 investment results are clear. I keep seeing 30%-plus increases for several asset classes and mutual funds for the year just past. You probably do, too.

Bonds and Rate Rises: Big Deal

What impact would rising interest rates have on your investment portfolio? Likely not so bad.

An interest rate hike has been widely anticipated for some time. According to an October survey of 50 top economists that the Wall Street Journal conducted, the yield on the 10-year Treasury was to rise nearly one percentage point by the end of 2014.


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