Before we can move on to a hypothetical example of a difficult period for stock-and-bond-only portfolios, it is important to understand the concept of bond market vigilantes. According to the The Roosevelt Institute:
A bond vigilante is a bond market investor who protests a country’s fiscal policies by selling off its bonds and refusing to buy them. This happens when the bond investors perceive the policy to be inflationary, and can act as a check on a government that is over-spending. The proof of vigilante action is high interest rates, as yields rise when investors perceive risk; this makes a government’s cost of borrowing rise.
Bond vigilantes can also come out of the woodwork to protest low-interest rate policies from the Fed. Bond vigilantes worry that excessive money printing will eventually spark inflation, which erodes the purchasing power of interest payments made to bond holders.
/wp-content/uploads/2018/03/logo.png00Stockradar/wp-content/uploads/2018/03/logo.pngStockradar2014-05-12 00:30:362014-05-12 00:30:36The Bond Vigilante
Only 10% of Australians trust financial advisors. AFR 5/5/2014. A scary figure.
The “trust busting” GFC took a heavy toll on the financial advice industry. Most advisors floundered without a sound strategy for protecting your capital.
We wear our hearts on our sleeve at Stockradar. We are transparent with nothing to hide. We are independent with no products to push. Honesty, professionalism and our member’s fortunes are our passion. Our results are envied with special attention going to the ‘GFC’ period. Protect your wealth. Be prepared for the bull or the bear by having a sound and methodical strategy to guide you.
Commit these ten rules to memory and you’ll be on your way!
Rule #1: Start by trading the stocks you hear about on TV or see people talking about on Twitter. Obviously those are the best stocks with the most opportunity, why else would everyone be discussing them? You don’t want to embarrass yourself by being involved with out-of-style, unpopular names.
Rule #2: Rules of thumb are there to help you. It’s important that you stay disciplined and stick to your game plan, but also be flexible and change things up when the market calls for it. Don’t get shaken out of a losing position but also you should cut your losses. Let your winners run but pigs get slaughtered. Remember to sell in May and buy the Santa Claus Rally in time for the January Effect in the midst of the best six months for stocks, hopefully during the second year of the Presidential Cycle.
Rule #4: Follow a trading guru at all times. You’re going to want to find trader to follow who charges you twenty bucks a month or so for stock tips. Also, the trader you follow should be bellicose and disrespectful to other investors most of the time – that’s how you know he’s good. All the greats learned this way.
Rule #5: When you find yourself stuck in a losing position, that’s when it’s time to do the real research. You’re going to need to find enough evidence to convince yourself to stay in, otherwise you’ll end up booking a loss and being wrong. If you can avoid or put off booking losses, your track record will look much better. Never surrender, only amateurs book losses.
Rule #6: When in doubt, remind yourself (and others) about your best trade ever. It’s important for your state of mind to focus on the winners. And read a lot of that Sun-Tzu sh*t.
Rule #7: Screens. Lots of them. Big-ass f***ing screens surrounding you with data and charts. It’s should look like f***ing NORAD in your trading turret. Otherwise, how will you know what’s happening?
Rule #8: Hedging is for losers – a great man said that once. Don’t ever enter a position unless you know you’re right – then there’s no need to hold back or cap your upside. And don’t be a pussy – go for it! The sooner you ramp up your gains, the more capital you’ll have to allocate.
Rule #9: Keep a laser-sharp focus on the benchmarks and where you stand in relation to them at all times. Having your eyes on the prize is key. Also be sure to have a strong opinion on everything – global macro trends, commodities, the bond market, other fund managers, and all the hot stocks along with their management teams and their earnings reports. Remember – awareness is how other people know you’re a real trader.
Rule #10: I cannot emphasize this enough – Never, ever stop trading, under any circumstances. There’s always a bull market somewhere! Even if you’re away from your desk, trade from the phone, that’s what it’s there for. You need to be doing something at all times or the game will pass you by. Stay sharp and keep trading. It is the solution to all your problems – bank account low? Trade. Bored at work? Trade. Your friends making more money than you? Trade. Bills piling up? Trade. Or you can just sit there and leave all that opportunity on the table. But that’s not what winners do.
Tack these rules up in front of you and you’re ready to begin. Get out there and be somebody!
In the past week two of Australia’s major banks have beaten expectations only to have their share prices marked down by investors.
The same thing happened at the same time last year as this chart of Westpac prices shows, with the stock falling before going ex-dividend (marked by the yellow line):
Michael McCarthy, Chief Market Strategist at CMC Markets, says it’s interesting that selling in 2013 and in 2014 started before the share went ex-dividend, a point in time when shares are expected to fall as they lose the weight of the paid out dividends.
“Once the share price drops enough the dividend yield argument becomes compelling again and in they pile,” McCarthy says.
“One of the key drivers in the huge appreciation in bank share prices over the last 18 months has of course been dividend yields,” he says.
The price of nickel is starting to get my attention. Those old enough might recall Poseidon in 1969/1970 – the last great nickel boom, when the stock rose from 80 cents to $280 in six short months !!!!
This is pretty useless as a piece of practical analysis, but nevertheless interesting. How can US fiscal tightening be so under-appreciated? Surely this has been the single biggest reason for the stock market advance. As for a China hard landing, old news, already baked in the cake!
/wp-content/uploads/2018/03/logo.png00Stockradar/wp-content/uploads/2018/03/logo.pngStockradar2014-05-01 03:53:222014-05-01 03:53:22Didn't expect to see this!