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Here’s a quick plug for John Carney’s new blog over at CNBC called NetNet. I’ve not yet looked at it but I always liked John’s commentary when he was toiling away at The Business Insider and he was quite gracious to me via email in apologizing about the chart kerfuffle a while back (see Now That Chart Looks Familiar at the old blog).
I guess I should go have a look at what’s over there – it’s funny how reading material at CNBC.com can be so, so different than watching them on TV…
Another interesting chart from the folks at CNN/Money shows in graphic detail the changing views about stock ownership by age group, the accompanying report noting how the Generation Y crowd is currently being hit with a double whammy – a recent history of market crashes and a job market that is much worse than for older workers.
What’s amazing about this data is the 35-49 age group where decades of conditioning that your best bet is “stocks for the long run” appears to have produced a nearly unshakable belief system. Even after ten years of dismal returns for equities (with the notable exception of gold stocks), Wall Street and the financial media should give themselves a pat on the back for being so successful in their efforts to convince the public that stocks are still a good bet despite the overwhelming evidence to the contrary.
[The following commentary is from the latest issue of the Weekend Update (Volume V, Issue 34) at Iacono Research. For subscription details, click here.]
The increasing amount of commentary on the subject of whether or not the world now faces a “bond bubble” combined with a recent article detailing the poor performance of inverse bond funds in 2010 seemed like sufficient justification to revisit a topic that was discussed here three weeks ago when I took “A Quick Look at Rising Rate Funds” (see Volume V, Issue 31).
Recall that, in the referenced discussion topic, short-term and long-term charts of Treasury yields were shown, in which it is clear to see that interest rates rose for decades to a peak in the early 1980s and have retreated from there to what now appears to be the end of another secular trend. Also, 13 inverse bond funds were presented in table form with the following three being suggested as likely candidates for the model portfolio when the time is right:
Obviously, as should be clear when looking at the graphic below, the time has not been right over the last four months because all three of these “unleveraged” funds – a key consideration for a position that may be held in the model portfolio for a very long time – have been big losers. Funds that apply leverage of between 1.25x and 3x have done much worse than the 1x funds, in some cases the year-to-date losses exceeding 40 percent.
Writing for the Vangaurd Blog, John Ameriks offers these thoughts about how the world’s smartest investors are foolishly piling into gold and how some of the richest people in the world are deluding themselves if they think the metal will help preserve their wealth.
We’ve been hearing a lot about gold over the last few months, related to concerns about inflation, the creditworthiness of various governments, and fallout from the financial crisis—all against the backdrop of what is the most significant increase in inflation-adjusted gold prices since the early 1980s.
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Over this entire 140-year period, the average price of one ounce of gold was $480 (in 2010 dollars). If the gold price remains stable through the end of this year—not a given by any means—there will have been only one other year in the last 140 (1980) in which the inflation-adjusted average daily price of an ounce of gold was higher than in 2010.
In other words, there was only one year in the last 140 when it would have cost you more in terms of foregone alternative goods and services to become the owner of an ounce of gold. These data show that during some periods of extreme inflationary or broader economic distress, gold prices have increased sharply, only to recede back to lower levels as things return to normal.
Of course, what is conveniently omitted from the discussion above is that gold was money during 100 of those 140 years – that’s kind of important. As for the future, somehow, it’s not clear to me that, this time, the gold price is going “back to lower levels as things return to normal” – whatever “normal” is these days.
Does anyone else remember a time when there were so many false positives for the economy and financial markets as in recent weeks and months? That is, false so far. The ECRI Weekly Leading Index has been screaming recession for about a month now and all we’ve seen in other economic data is slowing growth (though the jury is certainly still out on the U.S. economy). And stocks have recovered nicely from their recent swoon despite the much-discussed July 8th “Death Cross” warning (i.e., when the 50- and 200-day moving averages cross) as we are reminded in this item at The Dynamic Hedge blog.
Of course, the growing talk about the Fed cranking up the printing press should be factored into the performance of equity markets since that time. It seems the specter of QE II has compelled more than a few trading algorithms to bid prices higher, a development that could quickly reverse gear if the central bank fails to come through with any soothing words that begin with a “B” (preferably a “T”) when they conclude their policy meeting tomorrow.
After watching some of the evening news commentary last night on the latest Case-Shiller home price data, it became quite clear that the mainstream media did the nation a big disservice by fawning over the price increases in May, juiced as they were by the expiring homebuyer tax credit. Economist (surprise!) Casey Mulligan writing at a NY Times blog was similarly clueless. Here’s a pretty good take on the data from the Wall Street Journal:
The WSJ story referenced in the interview above – Supply of Homes Set to Grow – details the supply problem that looms and the math is pretty simple. In addition to some homebuilders ramping up production you have more than a year’s supply of foreclosed homes that have yet to hit the market, all of which makes any talk of a lasting rebound premature.
By Tim Iacono, Since 2005
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