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And We’re Out of Stocks

Posted by kdadmin on May 26th, 2015.

And We’re Out of Stocks

Which investment in the chart above would you prefer to own?

If it were me, I’d prefer to own the orange line (AGG – bonds) vs the blue line (SPY – stocks). Luckily, if you’re my client, you bought the orange line on Friday (May 22), and sold the blue line early this morning before most of the wreckage.

There is a reason I have been squawking about the comments made by Federal Reserve Chairperson, Janet Yellen, a couple of weeks ago. Back then, she said she thought equity values were too high. See my post, The Danger Zone. Some research suggests that the Feds could increase rates higher and faster than the market expects. A few negative comments by the Chairperson now could help lessen the perceived impact of that blow later.

Conjecture aside, we simply don’t have the economic data to support an expanding economy. In my post,20/20 Blindsight, I highlighted the weak news that stood in stark contrast to nonsensical rhetoric about “new stock market highs.” Add to this data the likelihood that
the GDP for Q1 could be adjusted down into negative territory and I can’t make a compelling argument for stocks, domestic or foreign.

Now, there is a case for bonds, but you have to be careful. Duration risk is very real. Duration is simply an indication of a bond portfolio’s sensitivity to interest rate shifts. So, a portfolio with a duration of 20 would be more sensitive to interest rate changes than a portfolio with a duration of 3.
I will cover this in more detail in my next post.

Until then, go play outside. These aren’t the droids you’re looking for.

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