You know “The Great Rotation” out of bonds, which investors feasted on during and after the ’08/’09 crash, into stocks? According to BlackRock CEO, Larry Fink, “It has been a rotation out of bonds into bonds (long-term bonds into short-term bonds). In fact, Fink (on CNBC- 1/17/2014) indicated BlackRock had many institutional clients rebalancing in the second half of 2013, selling stocks and buying bonds…this in response to the big run up the market experienced in the past few years.
“Risk Off!
As much as I dislike the trite “Risk On, Risk Off” terminology, it is a quick way to say that a bit of fear has slinked back into the market. A disappointing (to some) employment report, some in-line earnings numbers (not beats), weak retail sales reports and (all of a sudden) the pundits are worried about the viability of the economic recovery. A tip off may be the fact that prices on the 10-year Treasury are now above the level they were trading at December 18 (Fed Taper announcement day). On that day a month ago, the 10-Year closed at a 2.88% yield. Friday January 17th, 2014 the rate had dropped to 2.82%.
Economic slowdown/disinflation (deflation) stories are beginning to appear, like this little ditty from Barron’s Randall Forsyth: “Next: A Deflationary Bust.”
“Drowning Our Deflation Fears”
“The risk of falling prices and rising financial speculation. Surprise:
bonds get off to a good start in 2014.”
As we have said in the past, the potential for a stiff correction definitely exists and is certainly warranted. But, this proclivity toward safety and a public that continues to be weary of the market, gives me confidence on a longer-term basis that this secular bull market has further to go. We are nowhere near ‘irrational exuberance.’
They “could have had a V8!”
And now for something completely different: Barron’s Magazine brags about the performance of its stock recommendations in 2 013.
“Barron’s stock picks outpace the market” Not sure which market they mean. I usually mean the S&P 500, which was up nearly 30% (before dividends) in 2013…but read on.
“Our bullish 2013 stock picks rose an average of 17%, compared to a 13% gain for their benchmark” (some sort of melded index Barron’s concocted). “Negative selections, however, did not pan out, rising an average of 55% versus a 39.2% increase in the benchmark.” Maybe we should be buying their short ideas!
Now, for the “V8 moment”, instead of doing all the work it took to make some 134 long recommendations (they did not disclose the number of shorts that they wrote up), they could have owned an S&P index fund and, of course, had a total return (including dividends) in excess of 30%. I mean why make yourself crazy? Stock-picking is hard, even for the pros. Broad-based index funds allow participation without the headaches.
As we have said in the past, and has been proven here once again, paying too much attention to the financial media can be hazardous to your wealth!
Caveat Emptor!
What do you think?
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