Archive for September, 2009
Stocks Likely to ‘Catch Up’ With Corporate Bonds
By David Wilson
Sept. 22 (Bloomberg) — Stocks offer greater value than bonds and are poised to “catch up” with a rally in corporate debt, according to Rod Smyth, chief investment strategist at Riverfront Investment Group LLC.
The difference in yield between corporates and 10-year Treasury notes has narrowed more quickly than the Standard & Poor’s 500 Index has risen since March. The yield comparison is based on a Moody’s Investors Service index of Baa-rated debt.
Since December, the yield gap has fallen to 2.9 percentage points from a peak of 6.2 points, according to data compiled by Bloomberg. This spread is near its lowest level since January 2008, when the S&P 500 was about 22 percent higher.
Spreads have narrowed so much that stocks have more room to rise than bonds, especially as earnings increase, it added.
Smyth isn’t the only strategist whose focus has shifted to shares. “Equities no longer look expensive relative to corporate bonds,” Andrew Garthwaite, a global strategist at Credit Suisse AG, wrote in a Sept. 18 report. He downgraded credit, or bonds, based on relative value.
Barry Knapp, a U.S. strategist at Barclays Capital, drew a similar conclusion last week. Stocks have more to gain from the economic recovery that’s now in progress, he wrote in a report dated Sept. 14.
Overlooked risk in Bonds.
The low interest rate environment that may have kept the financial system alive, but it really seriously hurt savers. I’m talking about real savers, not investors. People who place money in the banks every month trusting that at the end of their working life, they will have a comfortable retirement.
Last checked, you will get less than 1% on a 1 year fixed-deposit and that is for a minimum amount of around $10,000. With inflation at above 4% the last 2 years, many people who worked so hard to save money are desperate for yields now.
Is it any wonder that bonds and bond funds performed so well this year? Globally, investors sank over $40 billion into bond funds in August, an all-time high for a single month, and are on pace to break that record again in September. For this reason, Stocks Likely to Catch Up With Corporate Bonds
A few important points to note.
The best MBA program
There are quite a lot of interest in MBA these days. Here are some of the more logically and statistically sound articles and rankings available. A lot of these will have an international focus.
The Wall Street Journal ran an article about the return on investment (ROI) from an executive MBA (EMBA) program. I did not find clear statistics of the surveys but, but the methodology and assumptions seemed to be directionally sound. In short, the calculations depend on these assumptions:
- The MBA program attended and its cost.
- The amount of tuition and fees paid by your employer.
- The increase in salary that you can expect from graduating the program, based on median results from other respondents.
Take note of the profile of the median results reported by graduates of these survey rankings, if your circumstances differ from them substantially, the result might not be what you will expect. Moreover, these analysis is conducted on a pretax basis which may greatly overstate your ROI, since salary increase will be subjected to taxes, whereas expenditure on tuition fees is likely to be non-deductible.
Wake me up when September ends
Nearer to everyone’s mind is the collapse of 158-year-old Lehman Brothers last September, triggering the fallout of financial markets. S&P 500-stock index dropped 9% last September and further 17% in October.
Many Septembers have nasty reputations. Great Depression started with a stock market crash in September 1929. During September 1930, the Dow Jones fell 15%. The worst fall in Great Depression and in history, was September 1931 where the index plunged 30.7%.
Then there was S&P 500 plunges of 12% in 1974; the 1997 Asian Financial Crisis which worsened in September; Black Monday of 1987 which came after stocks started going downhill in late August; September 11, 2001 terrorist attacks, where DJIA fell 14.3% in a week and 11% drop in S&P 500 in 2002. Locally, some cite the Hungry Ghost effect.
According to the Stock Trader’s Almanac, the S&P 500 index drops an average of 1.1% in September, making it the worst month of the year. Mentality can weigh surprisingly heavy on the markets. The return of finance professionals after summer holidays as a reason for volatility has been greeted with skepticism. “No modern funds and traders of any decent size goes for the whole summer off”
