More charts! The Atlantic has a big collection of 41 economic charts for 2013. Some are neat, some I don’t understand, and some I don’t think anyone really understands. 😉 Here are two investing-related graphs that caught my eye. The first one shows that correlations between multiple asset classes have dropped significantly recently. Submitted by Joe Weisenthal of Business Insider, who states that “one of the characteristics of a crisis is extreme correlation between multiple asset classes: everything trades up or down together.”
The second one shows the cumulative investment inflows into stock and bonds funds over the last year. Submitted by Joshua Brown of The Reformed Broker, who suggests that this shows “America is regaining confidence in the institution of investing again”.
When I see low correlations, it feels like a good time to rebalance your asset allocation. At the same time, it certainly looks like stocks have some momentum right now. Perhaps it’s best just to take a long nap until 2014.
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Looking at that I would want to buy bonds. But historically they have never been that great of a buy. Along with that the FED is going to slow down their bond buying spree which probably caused a bonds and stocks to be artifically propped up. Also Buffett says buying a bond right now is a bad idea, and he rarely is that definite on the immediate future of a asset class.
I wonder with talk in Washington about income distribution in America and obama saying his next three years are going to be able tackling that if they mean going after this richest strongest asset class (stocks)
http://cdn.theatlantic.com/static/mt/assets/business/assets_c/2013/04/p16-thumb-615×446-107778-thumb-570×413-117984.png
I think it would be idiotic to raise taxes on everyone investing in stocks (even those with high net worth) but for those that could afford it – hedge funds – and those with capital gains in excess of 1 mill a year…i think it makes a ton of sense.
Considering that bonds pay next to nothing right now even if you tie yourself into a very long term, and that bond funds will get absolutely destroyed the moment the Fed starts raising interest rates, I think I’ll look at charts like this with great interest (and little else) and shift some of my US equity holdings to international and emerging markets. Bonds don’t look like a bargain to me, nor do they look ripe for a rebound any time soon.
In fact, I haven’t held a single bond product in my portfolio since 2008, and I doubt I’m going to until the fed rate increases stabilize somewhere near historical rates. Which I think will be a while.
It may make sense to sell heavy gainers who haven’t got a lot of near term head room and hold some cash to buy in if we get a serious dip, but until I can get 6-7%+ from a bond or a cd I’m not buying. Real levels of inflation eat up what you get from a bond right now.
Not that I’m thrilled with having my money herded from reasonable balanced portfolio into far riskier territory, but the options just aren’t there. I’ll have to stick with dividend paying stocks for now. I feel really bad for older people in a traditional retirement or those in the 5 years approaching a traditional retirement, because bonds and cd’s were where you wanted much of your money to land and those just don’t pay enough right now.