Some folks may be surprised that unlike in 2010 when stocks launched, the latest round of central bank stimulus has hardly ignited markets beyond two weeks. Perhaps this was anticipated (US stock markets started moving up in June). Perhaps people are learning that there’s not much more it can do (real estate reported a flat month – hardly what you’d expect with 15 year mortgages in the TWOS!). And perhaps, it just takes a bit more to get people excited.
Now before you go and sell everything, remember Bernanke effectively gave notice that he will do whatever it takes to get things “moving” the way he wants to see. Which means being in cash could be dangerous.
This morning we have a China stimulus story boosting markets a bit. This after Chinese stocks touched their 2009 lows. A few things seem apparent at the moment:
- The market demands more stimulus
- Central banks around the world are taking turns promising that stimulus
- Each day that passes without a stimulus announcement, the market leaks a bit
I do notice that similar to what we discussed here earlier this year, the income trade appears to have regained the vigor it lost to the excitement of risk assets recently. Treasury bonds have risen 8 days in a row, dividend stocks that dip get bought up (see PM, MO), dividend stocks that didn’t dip keep rising (see VZ). Municipal bonds are rising as are REITS. This makes sense in an environment where interest rates stay at ZERO – even with poor economic growth, a cigarette manufacturer with a high dividend could look appealing to some people.
Marc Faber probably said it best – if you’re risk averse and not a trader, a well diversified portfolio of stocks, real estate, corporate bonds, precious metals and some cash makes sense.
Enjoy your day and let me know what you think in the comments box below.
At the time of this writing I or my clients own the following securities mentioned in this column: MO, VZ (positions may change at any time)