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Bernanke Delivers Knockout Punch To Bonds…Mistakenly

BondPunch-Stocks also take it on the chin

When Ben Bernanke mentioned that the Fed was just starting to think about possibly ending the bond buying purchases, otherwise known as Quantitative Easing, the bond market panicked, dropping over 15%. This was the worst drop in bonds since 1976, more than 37 years ago. The stock market didn’t like the announcement much either as it sold off 7%. This made for a very tough quarter for investors as most portfolios also took it on the chin. The good news is that bonds react quickly and then smooth out, and generally do not continuously drop like stocks do in a bear market.

In the wake of these big losses and increased volatility, most Fed governors have back pedaled, rushing- to say that the end of the stimulus would only occur if employment showed big increases and inflation remained above their 2% target. That’s right, I said “remained” above 2%.I know it’s hard for most of us to understand, but negative inflation, or “deflation”, is bad for the economy.

Well I’m here to tell you that if that is truly what they are looking for, then continued monetary stimulus will be around for a long, long time. As I discuss in Facing Goliath – How to Triumph in the Dangerous Market Ahead, we are in a deflationary environment. For an economy to grow there must be spenders. From that, you get inflation. The massive baby boom generation, which propelled our economy in the 80’s and 90’s, is well past their peak spending years and has stopped spending. Not until the next generation of spenders enter their peak spending years, those being the echo-boomers, will inflation be a problem again. That won’t happen for another 5-8 years.

The “Bernanke stutter”, which I am now terming it, did some good in that it was the catalyst for a much needed correction. Now that Ben and his financial puppeteers down at the Fed are bending over backwards to make sure we all know that they will not end the stimulative Fed policy anytime soon, stocks are set to go to new highs. One piece of history might help support this. Since 1980, there’s been 8 times when the long bond has declined by at least 15%. In 7 of those 8 times, stocks went through a two month decline with an average drop of 6.3%. Therefore it seems to me that the correction is over.

Although stocks will likely make new highs in the near future, the life remaining in this bull market can likely be counted in weeks or months, and not years. Remember, even trees do not grow to the sky. Bear markets are a normal part of even the best of bull markets during positive economic conditions, and one of these times we are certainly not in.We are well overdue for a standard bear market, so prepare accordingly.

Investor Strategy

If you are retired or within 5 years of retirement, use these positive periods to adjust your portfolio to the way it should be. There are plenty of ways to make money in this market without all the risk. The key is to be properly invested in a portfolio that is designed to get the best returns with the least risk possible, as the Springer investment approach is designed to do by managing risk and delivering returns in any market.

Most importantly, do not just take an investment approach for your retirement planning, but a comprehensive financial planning approach as we do for our clients. It’s not just your stocks and bonds. There is Social Security timing and estate and elder care planning to consider. If your advisor is just being an investment advisor, you are missing the boat. Let us help you into comfortable, stress free golden years.

…… and that’s where we can help. To learn more about our powerful proprietary Investment Management Strategy and/or get a free second opinion on your portfolio, simply reply to this email, or give me a call for a no-cost no-obligation consultation today at (916) 925-8900.









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