Asset Allocation

Stocks and Bonds in the New Year

As we start a new year, the universal view of market pundits is that bonds suck wind and stocks look okay.  This alone should make equity investors nervous and give some comfort to bondholders.  But expectations are modest:  the S&P 500 closed 2013 at 1848 and 2014 year-end targets from various investment banks range from 1850 to 2000, corresponding with returns of 0% to 8%. As we know from (sometimes bitter) experience–and extensive research–such predictions aren’t worth the paper they’re printed on, but can we say anything useful about risk? According to Sentiment Trader, which monitors investor sentiment, several stock […]

Glittering Forecasts

A January 3 article by Gregory Meyer in the Financial Times has reminded me that ‘tis the season for the punditocracy to issue their annual forecasts. Meyer’s story noted that this time last year, virtually every market analyst predicted that the price of gold would continue to rise. “Even the most conservative saw only tiny declines.” In fact, gold prices plunged 27% from December 31, 2012 to December 31, 2013.  And if you owned gold through the popular ETF, GLD, your loss for the year was 28%. The interesting irony here is not that the pundits were wrong–extensive research has […]

Should You Rebalance Today?

For much of the past year, I have argued in several blogs that bonds should be regarded as risky assets.  When ten-year Treasuries were yielding less than 2%, for example, I pointed out that this meant their prospective real return would almost certainly be negative.  On September 13, I warned about the potential for a liquidity crisis in the corporate bond market next time it encountered heavy selling pressure.  And “What Next?” posted on October 11, concluded that the various scenarios following Federal Reserve “tapering” of quantitative easing all favored the stock market over the bond market. With the year-to-date […]