I'd love to say I told you so about bonds....

Of course I'd love to say I told you so about bonds (getting hammered as I type), but being dead wrong on my bearish call for 3 years does not afford me the hubris to pretend I can time markets. Those of you who pay me to handle your stuff know that I have been, nonetheless, unapologetic in my subjecting your fixed-income allocation to subpar relative (to what we're used to) results. The thing is, the risk/reward relationship has been grossly out of whack when it comes to the bond market. I.e., the upside is minimal (below 2% until recently on 10 year money) while the downside has been monstrous (imagine what a sub-2% bond is worth when interest rates are rising). In other words, when interest rates are at history-of-mankind-lows there's very little room for price appreciation---and huge room for price depreciation---in an investment-grade (or otherwise) bond portfolio.

Of course if this (rising yields and falling prices) keeps up, there'll be opportunities to once again bring some yield into your fixed income allocation that we will want to carefully (remember bonds are supposed to be a stable part of your portfolio) exploit.

Stay tuned...

The Great Distortion...

"To me Ben Bernanke is a great American hero", said once treasury secretary/Bernanke abettor Hank Paulson last week in a CNBC television interview. Like Superman saving the Earth from a rogue asteroid, the mild-mannered leader of the U.S. Central Bank turned man-of-steel in the eleventh hour and rescued us from ..... uh ..... what? The greatest recession since the Great Depression? Nope! That's precisely what occurred. Yet, according to Paulson, our greatest-recession-since-the-Great-Depression-experience was some super-human (or humane) monetary policy achievement. Bernanke, he proclaimed, saved us from the Next Great Depression. I strongly suspect that had we experienced the Next Great Depression, Paulson would herald Bernanke as the great American hero who rescued us from a Depression Greater than the Next Great Depression. Truly, there's no trough that can't be buoyed by a well-articulated counterfactual.

Okay, let's be fair, the greatest recession since the Great Depression indeed bottomed amid mammoth monetary stimulus, as did the stock market (after the major averages plunged some 50%). So did Bernanke save us from, say, a deeper bottom and, say, a 60% plunge in stocks? 70% maybe? Hmm.... I wonder what would've happened without the mammoth stimulus? Surely the economy would've bottomed, but sooner? Later? Deeper? As deeply? Surely the stock market would have bottomed as well, but sooner? Later? Deeper? As deeply? We can counterfactual till the cows come home but we'll never know the dates nor the depths. And we'll never know for sure whether central planners extinguished or exacerbated the Great Recession.

The Keynesian-hearted will credit the slightest growth to policy. The free-market-minded blame our historically-slight recovery on policy-induced uncertainty. What both sides should (but won't) agree on is that a great distortion in the pricing of bonds has resulted from Bernanke's (perceived) super-humane efforts. The question now is how will the markets ultimately correct this great distortion? And did last week offer up a sneak preview? Time will tell...

Doing Unto Others

So your seventh-grader comes home from school today and tells you how much she loved playing cross-fire (dodgeball to you/me) in P.E. because she hit Tyler smack in the face. Shocked at the sadistic nature of your little angel