Greetings!
"You cannot - at least, I haven't found a way - get the bond
prices to go up when interest rates go up. When we find it, I
won't advertise it." - Dan Fuss, manager of Loomis Sayles Bond Fund
In a recent interview, one of America's most successful bond
fund managers explains the dilemma we're now in. At the risk
of this discussion sounding academic, I charge forward with
two major points investors today should consider.
- Interest Rates are at All-time Lows, and
- As Interest Rates Rise, Bond Prices Decline
Bonds are at Risk Today
First, we've heard repeatedly that interest rates are low.
Many of us fear, perhaps through unreliable sources, that
interest rates will rise, but when? This is not the risk that
you think it is to your portfolios. The greater risk is the
byproduct. Another way to state this same risk is:
- Bonds are at all-time high prices.
The second threat:
- Bond Prices Can Also Decline
As interest rates rise, the value of your current bonds may decline. If you could buy the same bond with a (now) higher interest rate, you would. This means that with higher interest rates, the old (low interest) bonds are worth less. So, bond prices can decline.
But when will interest rates rise?
We don't want to "buy high and sell low" so we're very
cautious in our fixed-income portfolios today. Ask your
advisors what bond managers like Dan Fuss are
doing to follow the trends and protect our principal. (7)
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| Weekly Economic Update | |
IS A FIX COMING FOR EUROPE'S DEBT CRISIS?
Last week, global markets rallied on European Central Bank President Mario Draghi's assertion that risks to the EU economy had increased, interpreting it as a signal that the ECB and other central banks might take swift action to rescue weaker eurozone nations. (Stateside, Federal Reserve Chairman Ben Bernanke offered no signal of more easing, but San Francisco Fed President Janet Yellen hinted that it might be possible.) Friday, President Obama urged EU leaders to address the sovereign debt crisis decisively, a request that gave stocks a boost Friday, even as Reuters reported that Spain was going to ask for an EU/IMF bailout. Will the EU and IMF decide to create something like TARP, or enlarge their bailout fund? The world is watching, and Greece's special elections are coming up.1,2,3
SERVICE SECTOR GROWS SLIGHTLY FASTER Many analysts had predicted a May decline in the Institute for Supply Management's closely watched non-manufacturing index. That didn't happen: the primary index rose 0.2 points in May to 53.7, and the new orders index rose 2.0 points to 55.5.4
LATEST BEIGE BOOK REASSURES ANALYSTS The Fed's latest periodic roundup of economic conditions in its 12 districts had 10 of them reporting either "moderate" or "modest" growth. Some economists had feared it might chronicle lost momentum; instead, it noted improving conditions in manufacturing, consumer spending and the housing market.5
GREAT GAINS ON WALL STREET New hope of central bank action spurred the following weekly advances: S&P 500, +3.73% to 1,325.66; DJIA, +3.59% to 12,554.20; NASDAQ, +4.04% to 2,858.42. Gold lost 1.89% last week with futures settling Friday at $1,591.40. Oil rebounded with a 1.05% gain for the week, settling Friday at $84.10 on the NYMEX.3 |
| Market Summary |
|
% Change |
Y-T-D |
1Yr Chg |
5-Year Avg | |
DJIA |
+2.76 |
+4.19 |
-1.30 | |
NASDAQ |
+9.72 |
+6.84 |
+2.21 | |
S&P 500 |
+5.41 |
+3.60 |
-2.41 |
(Source: msn.money.com, bigcharts.com, treasury.gov, treasurydirect.gov - 6/8/12). Past performance is no guarantee of future results. Indices are unmanaged, and investors cannot invest in them directly. |
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Create a beautiful week!
Karl Frank, MBA, MSF
Certified Financial Planner (R)
A & I Financial Services LLC
303.690.5070
Citations:
1 - www.reuters.com/article/2012/06/06/markets-global-idINL1E8H6FCI20120606 [6/7/12]
2 - www.cnbc.com/id/47720735/ [6/7/12]
3 - money.msn.com/market-news/post.aspx?post=c3e3a1ff-6754-4802-a4c2-41f8bba675f0 [6/8/12]
4 - www.ism.ws/ISMReport/NonMfgROB.cfm [6/5/12]
5 - articles.marketwatch.com/2012-06-06/economy/32069969_1_economic-reports-beige-book-moderate-growth [6/6/12]
6 - montoyaregistry.com/Financial-Market.aspx?financial-market=common-financial-mistakes-and-how-to-avoid-them&category=29 [6/8/12]
7 - Morningstar Advisor, June/July 2012, "Morningstar
Conversation," page 50.
Securities offered through Geneos Wealth Management, Inc., member FINRA/SIPC. Investment advisory services offered through A & I Financial Services LLC, registered investment advisor. |
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| Words for Thought |
"Your time is limited, so don't waste it living someone else's life."
Steve Jobs |
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Riddle of the Week
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Two couples played paintball. Each person had blue, green, yellow, or red paint, and wore a uniform in one of those same colors. Barbara used blue paint. The person wearing green used yellow paint. Steven did not wear the red uniform. Vicki used green paint and wore blue. Ian used the same color paint as his t-shirt. Can you match each person to the color of paint and uniform they used?
Last week's riddle:
Name three consecutive days without using the words Monday, Wednesday, Friday, or Sunday.
Last week's answer:
Yesterday, Today, and Tomorrow |
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Karl Frank was interviewed by 9News on March 28th, 2012 regarding "3 Things You Should Do if You Win the Mega Millions Lottery". | |
Click Here to View Video
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Karl Frank In Investment Advisor Magazine |
 | | Investment Advisor - November 2011 |
Investment Advisor Magazine's November 2011 edition features Karl Frank. In the article "Never Satisfied," John Sullivan writes: Passion born of tragedy drives Karl Frank to do all he can to help business owners ensure a legacy for loved ones and heirs. Industrial age publisher and philanthropist Frederick Bonfils said there is no hope for the satisfied man. If that's the case, Karl Frank is full of hope.
"I'm never satisfied," Frank says matter-of-factly when asked about his advisory firm
.....Read More. |
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