Conscientious Financial Planning and Retirement Income Management | 201-741-9528
from Lonier Financial Advisory LLC, Osprey, FL

Rate On, Rate Off

Rate On, Rate Off

The S&P 500 has been on a steady up-swing since the beginning of the year. The Treasury yield curve has also been slanting up, the long rate back up over 3% from a record low in December, as Treasuries begin to fall in price with money moving into equities. (See this nifty interactive historic yield curve play toy.)

T-Bonds are still pricey, especially if you are an inflation hawk. The Fed today counseled that it intends to hold rates low through late 2014. This takes some of the risk off holding government bonds for now, but at just a notch or two above historically low rates, it’s still a bubble-like situation. If you’re trying to build a retirement income floor, it may pay not to lay too much of it just yet.

Corporate bonds, on the other hand, are surging with the market. LQD is nearing a 52-week high, and junk funds and preferreds are moving up, buoyed perhaps by generally positive news this earning season. And the continuing low rate forecast/Fed commitment.

For Fed watchers, Bernanke gave a wonky press conference today, as transparent and openly detailed about Fed deliberations and mechanics as any in memory for what has often been an opaque and mysterious institution.

The Euro-mess overhang is still out there, like a snow shelf high in the mountains over Davos threatening avalanche. It could sweep down the hillside at any moment, blanketing a good chunk of the global economy, some would warn. Or not, others would counter, it’s being managed.

The market wants to believe. So what do you do? Well, if you sold back in 2008 or 2009 during the collapse and you’re thinking of buying back in now, you may become one of the hapless classic market timer examples of the sell-low buy-high syndrome that afflicts fair weather investors.

At least wait for a pullback that isn’t the beginning of the avalanche.

Can’t tell whether the avalanche is coming or whether last year’s high is actually a good entry point for this year? Of course you can’t tell. Nobody can. That’s why you need a better strategy than trying to time the market!

Disclosure: The author is long LQD.

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