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The Monarch Report 6-18-2012
The Monarch Report 6-18-2012
Well know the financial markets are back to normal when they can stand on their own without any hint of support from central banks.
Data as of 6/15/12 Standard & Poor's 500 (Domestic Stocks) DJ Global ex US (Foreign Stocks) 10-year Treasury Note (Yield Only) Gold (per ounce) DJ-UBS Commodity Index DJ Equity All REIT TR Index 1-Week 1.3% 2.0 1.6 3.2 0.0 0.4 Y-T-D 6.8% -1.5 N/A 3.4 -8.5 10.9 1-Year 5.6% -17.4 3.0 6.4 -20.2 13.1 3-Year 13.3% 3.5 3.7 20.4 0.7 30.1 5-Year -2.6% -7.4 5.2 20.0 -6.1 0.9 10-Year 2.6% 4.5 4.9 17.7 2.8 10.1
Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barrons, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
IS THERE A BUBBLE IN THE BOND MARKET? As you know, interest rates are near record lows and that hurts savers who were used to receiving relatively high and mostly risk-free income on their savings. For example, back in 2007, 10-year Treasuries yielded about 5 percent, according to the U.S. Department of the Treasury. Last week, the yield was down to about 1.6 percent. Since bond prices move inversely to yield, this means as yields moved to near record lows, bond prices moved to near record highs. And, now, some analysts are asking if bond prices have reached bubble territory, according to Bloomberg. One of the most recent clear-cut cases of a bubble was the technology boom of the late 1990s. Unfortunately, that was followed by the technology stock bust of the early 2000s. You may recall that bubble was based on greed as investors clamored to get in on the internet frenzy and make some easy money. But, todays peak in the bond market is just the opposite. Its based on fear, not greed. Due to economic uncertainty, investors have jumped into bonds to preserve their money and this fearbased demand for bonds has pushed prices up and yields down, according to Bloomberg. So, can a bubble be based on fear or are bubbles just reserved for greed-driven extremes? In reality, were not as concerned about the definition of the bubble as we are about the possible unwinding of the bubble. The technology bubble of the late 1990s and the strong bond market of today are great examples of two things that can drive markets to extremes greed and fear. In the end, whether driven by greed or fear, extreme movements in the financial market tend to eventually reverse themselves and revert back to the mean. Our job as your financial advisor is to acknowledge these emotions, but not get caught up in them. We do our best to remain rationale and analytical in the face of greed and fear so we can do the best job possible in securing your financial future.
* To unsubscribe from the The Monarch Report please click here, or write us at karen.rogers@lpl.com. http://www.reuters.com/article/2012/06/14/us-markets-stocks-idUSBRE84S0BG20120614 http://www.reuters.com/article/2012/06/15/us-markets-stocks-idUSBRE84S0BG20120615 http://articles.marketwatch.com/2012-06-13/commentary/32196927_1_stock-market-debt-crisis-crises http://www.cnbc.com/id/47792734/ http://www.hussmanfunds.com/wmc/wmc120618.htm http://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/TextView.aspx? data=yieldYear&year=2007 http://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/TextView.aspx? data=yieldYear&year=2012 http://www.bloomberg.com/news/2012-06-11/bond-bubble-dismissed-as-low-yields-echo-pimco-s-newnormal-1-.html https://guidance.fidelity.com/viewpoints-workplace/dont-let-fear-2