Long-Term Perspective on Interest Rates

Source: Global Financial Data

Source: Global Financial Data

Article of Interest

Systematic Relative Strength brought the following to everyones attention:  

With interest rates surging in recent days, I think it is interesting to stand back and look at a chart of the 10-Year Treasury Yield from a broader historical perspective.
Business Insider’s take:
So if you believe in the power of mean reversion, then it’s not unreasonable to expect yields to head back up toward 4%.
Although investors have grown accustomed to interest rates primarily moving in one direction (down) over the past 30+ years, history shows a number of periods of extended rising rate environments. Needless to say, it is quite possible that there will be opportunities to add value over a passive approach to fixed income exposure by being tactical in years ahead. In the context of multi-asset class portfolios, that may mean underweighting fixed income altogether. For allocations within fixed income, it may mean being more discriminating when determining what sectors of fixed income to own. I suspect that relative strength may prove to be very valuable in the years ahead as it relates to fixed income exposure.


Interesting Chart: Newspaper Ad Revenue Crashes



The Problem

Over the past decade the impact of the internet (blogs, Twitter, and Facebook) has replaced the newspaper as the primary source of daily information. With iPhones, iPads, and the ability to send photos or video around the world instantly over the social networks, print is just too slow. Example: video streamed live during the last tsunami, not from the news services, but from individual cell phones.

The Necessary Change

The print media, like the book industry, must adapt to the changes occurring around them. Publishers realized when ebook sales surpassed print book sales, several quarters ago, that they must embrace what they have resisted for so long. The print newspaper industry must also adapt or perish. Without the meager addition of online sales the newspapers would be back to the 1950’s revenue.

Impact on You

We are all susceptible to change, which remains constant. Humans are the most adaptable creatures on the planet and businesses must also be adaptable. Look around and see what technology or resource you are resisting to adopt. It may be just what you need to prepare for the future.

Interesting Chart: Home Prices and Gold

The compound effect of the decline in real estate and the strength of commodities has created an interesting comparison. The important decision is how to position yourself now.

Subscriber Only Content Subscribers should do a comparison of IAU over the past five years to see just how strong commodities are on a relative strength basis.

Interesting Chart: Future of Commodities?

Source: Jeremy Grantham - GMO Quarterly Letter - April 2011

  When the world's fastest growing economy is consuming commodities at these rates... what is the future of commodities?

Subscriber Only Content For more information on the impact of consumption will have on commodities and their position in the marketplace and client portfolios please download summary page from Jeremy Grantham's Letter. Made available by permission from the publisher.

Interesting Chart: Gasoline

Source: Chart of the Day

The SIA Market Report portfolio has an 8% position in United States Gasoline FD LP (GAS) as one of the strongest relative strength commodities. See chart below.

Source: SIA Market Report

If you are not a subscriber and you would like to gain access to the full portfolio details, you may receive a 14 day free trial at http://www.ActionSheets.com and be sure to select Lloyd Williams as referrer to have access to the Subscriber Only training and resources.

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Another Reason for Tangibles

Colin Barr wrote an interesting article for Fortune last week, titled Lost decade? We've Already Had One. The article sheds further light on the blog post earlier concerning the increase in earning on the S&P 500.

GDP that stems from new debt — mainly deficit spending — is phony: it is debt-financed consumption, not prosperity. Net of deficit spending, our prosperity is nearly unchanged from 1998, 13 years ago. - Rob Arnott of Research Affiliates

The article reinforces our concentration in commodities and commodity-driven markets as the assets with the greatest relative strength. Domestic US equities substantially lag in strength and hold a minority position in the portfolio currently.

Subscribers will recall the importance of the low correlation between tangibles and intangibles. These two large market categories comprise the macro movement of the markets, as they shift over long periods of time from tangibles to intangibles. Those investors limited to only the intangibles of stocks, bonds, and cash are handicapped in all markets conditions.

Please add your thoughts and comments above.