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stock_creeper
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  • The Perfect Portfolio [Edit or Delete]1 comment
    Jan 13, 2012 3:04 PM
     
    The insufferable libs still keep insisting that America must take its medicine of debt reduction and higher taxes, but policy makers think otherwise, which is why stocks keep rallying everyday. More spending = more growth, more profits and higher stocks. The very fact that stocks are at multi-month highs even as PE ratios and treasury yields remain historically low is all the proof you need that the US economy is indeed fundamentally sound despite the record debt. You can inflate your way to recovery. It worked between 2003-2008 and it's working now, although this time interest rates and yields are never going up again due to huge foreign & government institutional treasury purchases, giving Bernanke the privilege of never have to take his foot off the accelerator. Foreign central banks don't have this luxury which is why their economic growth is slower, why they have higher inflation, and poor performing stock markets and currencies relative to US indexes and the US dollar. 
     
    That brings us to TLT, an ETF proxy for US treasury bonds. When you have stock market a sellof, even a very slight one like today and earlier this week, the bond purchasers go nuts and drive yields lower and TLT consequently surges. It's like a bond feeding frenzy. China cant get enough of this 0-3% yielding debt. Any excuse to buy debt- even a 30 point DJIA sell-off or whiff of bad news in Europe will suffice. But when stocks rally the bond market is only slightly scathed. These automated purchases put a cap on yields, so TLT will only fall modestly. 
     
    We're in a new economic paradigm of asset class inflation, for all asset classes including ones that traditionally had inverse relationships. You can have treasuries, stocks, munies all rallying together. It;s happening now and will continue to do so for the foreseeable future because America, unlike Europe, has the printing press and reserve currency status.The liberals, on the other, hand resent America's bond exceptionalism and desire a hyperinflation economic implosion. Or they want mutli-class asset deflation. Neither will happen. 
     
    This chart isn't a fabrication; stocks, TLT , and munis are really rallying together. It's nuts, high? But it makes perfect economic sense.  
     
     
      
    In conclusion, the perfect low-risk, low beta, perpetually rising portfolio is one that incorporates an even mixture of SPY, TLT and MUNI or a an alternative version is a 50/50 split of DIA and TLT. It's inconceivable you can lose money with such a portfolio, especially after factoring in the dividends from SPY. 

    Even with the dow at 14000 I predict the 10-year still won't crack 2.75 versus 2007 when the dow was last at 14000, 10-year yields were above 5%. Short term yields won't budge much either. 

    It's funny how stock creeper with only 37  followers knows more about economics and has more common sense than Peter Schiff and his thousands of followers. 
     
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    The foregoing is brought to you by the Asylum For Deranged Bloggers Who Know There Really Is A Santa Claus and Fusion Power Is Apple's Next Roll-out.
    16 Jan, 12:40 PM Reply Like
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