Blame it on the Weather!

Or: the dog ate my homework, again…

Taper alert! The dread beast was spotted again today, unleashed by the new Fed Chair Janet Yellen. Another $10 billion reduction in the monthly money printing, now down to a mere $55 billion per month. The blah blah blah was all the usual, all as expected, but the funny part is the persistent attempt at cautious optimism in the face of bad data, which is mostly being blamed on the weather these days. Even in California?

Blame It on the Weather

Bottom line, Wall Street growth projections being revised back down to the same lackluster 2% or so, no improvement in jobs. The Fed even stated it was not going to tie changes in short rates to getting below 6.5% in the “official” and widely published unemployment rate; meanwhile the broader measure stays in the teens and millions remain on the sidelines without any job or with part-time work or lesser employment. Still stuck, sadly.

And now for the bad news, the crisis in Eastern Europe

Crimea is gone, taken over by Russia. The question is, in the face of little serious resistance, will Russia stop there or attack Ukraine? President Obama said tonight that the United States would not engage in any military “excursion” into Ukraine, so it is up to Mr. Putin now. Disturbing to contemplate what might follow that invasion.

We are not suggesting that there is any predictable market result to contemplate. Markets are about profits, and however anyone might feel about these military actions and potential bloodshed, it is not clear that there will be any substantial long-term effect on equity markets. Bond markets might actually benefit. We felt it was important to mention these events, as they are historic and alarming, but they may or may not affect the markets. As we have already observed, the lack of response from the United States and NATO makes armed conflict between the major powers less likely, and markets have enjoyed a “relief rally.” The point is not to panic and make a financial mistake in reaction to these events. That will not help anything.

Meanwhile, looking at tax-exempt fixed income…

The article linked below is written by a muni bond manager that we know well. Throughout this multi-year period of fears about rising interest rates, they have been counseling clients to be sanguine about bonds. With the Fed keeping short rates at zero and actively working to keep long rates down (with the now $55 billion of printed money each month buying at the longer end of the curve, see above), collecting a few percent of tax exempt interest and enduring some pretty modest fluctuations in principal value makes good sense. No reason to panic, especially when there are no signs of inflation either. We have what is known as a steep yield curve, meaning long rates are a lot higher than short rates. So while we have all been waiting for that big spike in interest rates, we have been collecting a lot of tax exempt interest.

Standish Mellon has written a nice, short note on the topic, well worth five minutes of your attention:

Monthly Municipal Market Update - March 2014

 

And remember what the bonds are for–when equities do go down, as they certainly will at some point (and as they did in January), you will be glad you have some bonds for stability. It is always nice to be diversified.

 

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
Roger Hewins
Roger Hewins

President

Roger Hewins is the President of Hewins Financial Advisors, based in North Palm Beach, FL. Roger has more than 30 years of experience in investment management, helping bring the sophisticated financial advice typically reserved for large institutional clients to everyday investors, from high-net-worth individuals and families to small businesses and retirement plans.

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Blame it on the Weather!

time to read: 2 min