In essence, with the world's central banks determined to depress interest rates at any cost, many insisted that electronically printed money would continue finding its way into stocks.
What was forgotten in the excitement of bond bailouts by monetary policy institutions (e.g., Bank of Japan, U.S. Federal Reserve, European Central Bank, etc.) was the probability that the actions would do little to help the global economy.
Until recent profit warnings by business cycle bellwethers like Caterpillar (CAT), until Philadelphia Fed chief Charles Plosser announced that mortgage-bond buying stimulus would not lower unemployment, investors seemed content to ignore economic difficulties altogether.Adding fuel to global recession fears, Spanish 10-year yields have worked their way back above 6%. Until and unless Spain formerly applies for the ECB's bond bailout, risky assets may continue to lose some of their luminescence. In fact, even after a formal request for bailout funds, the conditional nature of the funding may only deepen Spain's horrific economy. At the end of August and at the beginning of September, I advocated that total market investors consider downshifting to yield producers and inflation fighters. Inflation-fighting "faves" included Vanguard REIT (VNQ) and SPDR Gold (GLD). Yield producers with wide historical spreads over comparable Treasuries included iShares FTSE NAREIT Mortgage REIT (REM), Guggenheim Multi-Asset Income (CVY), SPDR Barclays High Yield (JNK), iShares S&P U.S. Preferred (PFF) and PowerShares Emerging Market Sovereign (PCY). Out of the September gate, it appeared that I may have underestimated the Fed's ability to shock and to awe. Yet, with two trading days left in the month, my more conservative stance is allowing my clients to sleep soundly at night. The seven top holdings in September (9/1-9/26) and the approximate percentage increase were:
SPDR Gold Trust, 3.4%
iShares FTSE NAREIT Mortgage REIT, 2.6%
Guggenheim Muli-Asset Income, 1.5%
PowerShares Emerging Market Sovereign, 1.5%
iShares S&P U.S. Preferred, 0.7%
SPDR Barclays High Yield Bond, 0.3%
Vanguard REIT ETF, -2.2%
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