Category: Alternatives (really weird stuff)

QUESTION: the New York Times is concerned enough by the bond market to write an article on the matter, so are you concerned too?

ANSWER: yes.

Again, Finance 101 says that an asset is worth its cashflows in perpetuity, discounted by an appropriate rate.  The appropriate rate is almost always related to the 10-year US Treasuries, who when their yields go up, valuations go down!  Why, and how far, yields rise or fall is subject to lots of analysis by pseudo-scientists (also known as economists and chartists).  It is fair to say that with lots of government debt to refinance, political pressure, a great economic resurgence, low unemployment, on the balance of probabilities, US yields are likely to rise.  How much is debatable, but for anyone older than 60, another 1% would be at the lower end of expectations.

ACTION PLAN:

1. Firstly, if you can’t value an asset, including equities, by discounted cash flow, you are just punting securities, derivatives, etc, rather than investing.  You should get a licensed investment manager.
2. The most significant means to increasing your wealth is getting the asset allocation correct.  For most people, that means knowing when to put money into equities, bonds, et al and when to take it out.  The first thing you need to ask your investment manager (or yourself if you take the DIY route) is what is the expected 10-year US Treasury yield and the percentage of a portfolio that should be equities, bonds, realty or cash (the other asset classes are so speculative, they should be only for the very brave).
3. Once you establish how much to allocate to each class, then it is a question of which security or property in each class to buy.  For the DIY folks, that will most likely be an index.  For professional investment managers, it will buying individual stocks, bonds and realty.
4. Contact TurnerStreet if you wish to buy our current asset allocation recommendation, and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.

IMPORTANT: This Q&A is general product advice for wholesale or sophisticated investors, and NOT suitable for retail investors.  Retail investors should seek advice specific to their circumstances and not rely upon general product advice written for other types of investors.  Retail investors acting like wholesale/sophisticated investor are likely to experience inappropriate and/or excessive risk for their circumstances, and unacceptable losses.