Treasuries have been a consistent theme in the news over the past month. Talks about a possible US default have kept bond-owners on edge. Any potential default means that they would not get paid for their coupons. Even though Obama has signed the debt deal, bond-owners are still worried about a possible downgrade on US debt by ratings agencies.
Europe has been a point of focus for debt talks and downgrades for the past year. We have seen many countries have their sovereign debt rates spike as downgrades have pushed some countries to junk bond or near junk bond status. Curiously, interest rates in the US got punished as bond prices soared as the debt deal went through. There are two main reasons of why this happened: poor economics and credit rating.
We have seen a lot of poor economic numbers in the past couple weeks from around the globe. This has led many to buy up Treasuries as they seek a safe shelter. As a result, bond prices have been bid up and rates have fallen. With the debt deal passed and the debt ceiling raised, chance of a default are slim. The lingering fear is a concern about a possible downgrade. Though this might be a very viable possibility, the US would only fall to a AA rating. This isn't exactly a terrible rating or one the would automatically demand a sudden increase in rates. Fitch has been the only company to comment as of now. They're not changing their current stance on the rating but might soon if no changes are made.
US Treasuries continue to be a safe haven as worries about the global economy resurface. The current debt deal has not had the impact that some thought it would. Should the US not change anything fiscally, ratings agencies could downgrade US debt. This wouldn't cause rates to spike although we should expect to see some type of rate increase. For now, bonds continue to be the safest place to be for the short term.
Thursday, August 4, 2011
Wednesday, August 3, 2011
I'm Back...Right Where I Left Off
It has been a year since my last post. I just couldn't stay away any longer given the amount of variables that keep popping up helping to hinder economic and financial growth. My last post was about how Europe fears will linger in the market for a while to come. Amazing how that is still the case given how Greece is still on the brink of default with a few other countries also having financial troubles. We are seeing the same problems over and over. They take a few weeks or months off and then reappear. Investors, with our short term memory problems, tend to forget about these problems when they temporarily disappear from the markets.
Yesterday was the largest of a long strings of losses for the markets. I, along with all other investors, have felt the discomfort of losing money day after day with no end in sight over the past week and a half. I have made the same mistakes that I have sworn to never make again. I revamped my portfolio a few weeks ago when things seemed to be looking up; however, I didn't include a couple of key things. I kept almost no available cash for any drops in the market. I also did not set any limits. Had I set limits, most of my holding would have sold off allowing me to then have available cash to buy back at a lower price. I would have been a lot better off with either of those things. I didn't necessarily have to have both to be fully covered.
The only reason I am not as worried as I used to be is because of a longer term view I have taken on. I have seen a lot of companies I have sold, after either making or losing money, go on to rise a lot further. Some have fallen a lot further making my selling ideas seem genius. The question is what has continued to go up and go down? Larger, value companies keep going up. It may not be quick or continuous. It is, however, filled with dividends that make up for a month of no return. The ones that tend to go down and keep going down are smaller, growth based companies that are mainly technology based who keep missing earnings forecasts. I am not worried because I have filled my portfolio with mostly large cap companies with great dividends. Even though they might be falling now, I see dividends popping up in my account making me remember why I bought these companies. Even midcap companies that I have invested in have a small dividend package. Although I may not have kept my two key ideas of keeping cash and setting limits, I have invested in dividend based companies giving me a reason to not feel as worried as I would have been.
Yesterday was the largest of a long strings of losses for the markets. I, along with all other investors, have felt the discomfort of losing money day after day with no end in sight over the past week and a half. I have made the same mistakes that I have sworn to never make again. I revamped my portfolio a few weeks ago when things seemed to be looking up; however, I didn't include a couple of key things. I kept almost no available cash for any drops in the market. I also did not set any limits. Had I set limits, most of my holding would have sold off allowing me to then have available cash to buy back at a lower price. I would have been a lot better off with either of those things. I didn't necessarily have to have both to be fully covered.
The only reason I am not as worried as I used to be is because of a longer term view I have taken on. I have seen a lot of companies I have sold, after either making or losing money, go on to rise a lot further. Some have fallen a lot further making my selling ideas seem genius. The question is what has continued to go up and go down? Larger, value companies keep going up. It may not be quick or continuous. It is, however, filled with dividends that make up for a month of no return. The ones that tend to go down and keep going down are smaller, growth based companies that are mainly technology based who keep missing earnings forecasts. I am not worried because I have filled my portfolio with mostly large cap companies with great dividends. Even though they might be falling now, I see dividends popping up in my account making me remember why I bought these companies. Even midcap companies that I have invested in have a small dividend package. Although I may not have kept my two key ideas of keeping cash and setting limits, I have invested in dividend based companies giving me a reason to not feel as worried as I would have been.
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