Party on, investors!

Tuesday, 12th November 2019

Party on, investors!

It would demoralize the mountaineer….

Enough, we imagine, to make him tear off his backpack in frustration and hurl it into the ravine….

But, if the stock market is your game, it is the gift that keeps on giving….

Just when you think you’ve reached the ultimate peak an even higher summit rises up out of the mists….

  • The winning formula….

Over in the US last week, the Dow Jones Industrial Average jumped more than 100 points to a new record high….

The other two major US indexes are also at – or as close-to as makes no difference – record  highs….

Across 2019, the Dow Jones Industrial Average has added about 17% in value….

The Nasdaq composite is up close to 26% over the same period. The S&P 500 has gained about 23%….

Even a fool could make money in this climate. Many have. The stock market can do no wrong. It has done no wrong for a decade and more….

The winning formula could be taught to children in primary school….

Trust to corporate America, throw your money into the stock markets and then sit back and watch that money grow….… Click here to read more

Is it madness or fear at work?

Tuesday, 16th July 2019

Is it madness or fear at work?

I need a favour and I wonder if you can help me out….

I’m a little short of the folding stuff at the moment and it would be a great help if you could see your way fit to lending me £5000….

Don’t worry. I will pay you back. That’s for sure….

And better still, I won’t charge you an exorbitant rate of interest for giving me the loan….

You can lend me the full sum and it will hardly cost you any money at all….

Does that sound like a good deal?

No, I didn’t think so….

But that’s the kind of deal that’s being done with increasing frequency in bond markets right now….

  • What’s happening?

Under normal circumstances when investors lend money to governments, the government will not only undertake to pay the principal capital back after a fixed-term – but will also pay what is called a ‘yield’….

That yield is the interest – the price the government pays for the privilege of borrowing the capital in the first place….

As I say, that’s what happens under normal circumstances….

But circumstances are anything but normal right now….… Click here to read more

On the retreat….

Tuesday, 4th June 2019

On the retreat….

Bonds are pretty dull fare….

The character Jared Vennett (played by Ryan Gosling) in the film The Big Short summed it up better than I can….

‘If banking was boring, then the bond department at the bank was straight up comatose. We all know about bonds. You give ‘em to your snot-nosed kid when he turns 15; maybe, when he’s 30, he makes a hundred bucks. Boring.’

But boring or not, the bond markets are sometimes instructive….

They sometimes have something important to tell us….

And now is one of those times….

  • First, how bonds work….

Before we get into the nitty-gritty, it’s important to understand how bonds work….

I’m no expert, but here are the basics we need for our purposes today….

When you buy a bond, you are basically lending the bond issuer money. You buy at the current price and the lender pays you what is called a yield – like interest….

For the purposes of this column today, the important bit is this: the yield of a bond is inversely related to its current price. If the price of a bond falls, its yield goes up. If the price of a bond goes up, the yield falls….… Click here to read more