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« When Something Goes Wrong: The Case of JP Morgan Chase | Main | The Investor Edge from Europe »

May 12, 2012

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oldprof

Pacioli - I'm sorry that you did not find Tom Brakke's piece to be helpful, but I suspect that many others will. Perhaps you are more sophisticated. I interact with many individual investors and they have no idea of how much they COULD lose in bonds and bond funds. The bond math is an important lesson.

As to the topic that you find more interesting, it is an underlying theme for me every week. BTW -- one catalyst for a shift in individual behavior might come when they see a statement that shows losses in bond funds.....

Jeff

Pacioli

Thanks for this week's update.

I was a bit disappointed after following your link and reading what you characterized as an "excellent analysis by Tom Brakke".

His analysis, like countless others, simply states that bond yields are low and have been falling for a long time, arriving at the all too common conclusion that "If interest rates rise, it won’t be good."

The problem with this "analysis" is that the conclusion is insultingly obvious.

A more valuable discussion would look into what catalysts might realistically cause interest rates to rise. A realistic assessment of those probabilities quickly reinforces the perspective that despite yields being low currently, they could certainly remain low for a LONG time, and even go lower.

In the investment management world, I would liken the tired theme presented by Brakke (and countless others) as an investment idea based solely on valuation. Valuation alone is never a catalyst (at least within the circle of investment managers I commonly correspond with and read).

oldprof

Keith - We have three levels of prediction going on here -- the economy, earnings, and the psychology of the market reaction.

The market types have been too pessimistic on the economy and earnings. They are eager to embrace simple rules that have worked two years in a row (ignoring the many differences from last year).

So I do think that there will be a sentiment shift and a move from bonds to stocks as Heebner suggests, but the timing is difficult to forecast.

Those who claim to successfully make such forecasts are exaggerating, as we can see by checking the record.

Great question -- and a theme we should all watch closely.

Jeff

Keith Piccirillo

Thanks for the market encapsulation Mr. Miller.
I have a question for you.. Non cyclicals have done well the past 2 summers and cylicals have not. Although that may be different this summer airlines and housing related have done pretty well lately. What if the end in ZIRP was imminent would not cyclicals show continuation?
Anyhow, this is Ken Heebner's thesis, that bonds (yes I did read your link!) and gold are to be sold and cyclicals will get the lion's share, although the summer doldrums in a presidential cycle gives me a small bout of cognitive dissonance.

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