Category: Markets

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Bonds, Part 2: Corporate Debt Fundamentals Worsening

A couple days ago I emailed a commentary about how I’m managing clients’ bond sleeves. As a brief refresher, I’m avoiding high yield / junk bonds and over-weighting Treasury bonds relative to investment-grade corporate bonds. That commentary was very high level focused on the historical performance of each segment during times of economic and market stress. Today, I’m going to get a little deeper into the weeds.

Executive Summary:

  1. The credit quality of the investment-grade bond market is deteriorating
  2. Corporations have been piling on debt so leverage is at all-time highs
  3. High yield bond prices beginning to roll over

Continue reading “Bonds, Part 2: Corporate Debt Fundamentals Worsening”

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Are You Prepared for the Next Bear Market?

My expectation for losses in U.S. stocks during the next bear market is over 60%, which would take us back about twenty years and would require at least a 150% gain just to get back to even.

What impact would such a loss have on your portfolio? What impact would that have on your ability to retire or sustain your retirement lifestyle? Would any other financial goals be impacted? How about the toll on your mental health to see such a large chunk of your life savings wiped out. Continue reading “Are You Prepared for the Next Bear Market?”

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Investing Is So Simple. Just Do This.

Load up on stocks when they’re cheap. Reduce stocks when they’re expensive. It’s really quite simple.

Valuations tell us how expensive or cheap stocks may be, but beware! There are many different measures of valuation so it’s important to focus only on those that are highly correlated to future returns.

Below is a chart showing one measure of market valuations going back to 1900. This particular valuation metric is called the Shiller Price / Earnings Ratio, or “Shiller PE” for short. The Shiller PE has about a 90% correlation with future 10-year returns. That’s a very respectable correlation and indicates reliability.

Notice the peaks and valleys? I was curious to know how the market performed following various extremes over time to see if the Shiller PE provides useful information. So I performed a brief study. Check out the results…

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Continue reading “Investing Is So Simple. Just Do This.”