Bruce Wayne and Peter Parker were seemingly ordinary citizens that took it upon themselves to correct wrongs they observed. To most, they were viewed as heroes but others felt they were disruptive and no better than the criminals they were squaring off against. In the last couple months, there is talk of bond vigilantes in the financial markets. Who are they – blamed for exacting pain on both stocks and bonds? Are they villains or heroes? The term “bond vigilantes” was coined by analyst Ed Yardeni in 1983 to describe the role bond investors played in disciplining governments by issuing bonds to finance spending, that looked irresponsible. At the time Yardeni wrote, “if the fiscal and monetary authorities won’t regulate the economy, the bond investors will.” With both stocks and bonds suffering a 3rd consecutive month of pressure and significantly erasing what were nice YTD gains to end July, let’s pose the question: are bond vigilantes a hero or villain?
Author Archives: Nvest Wealth Strategies
“Too Many Moving Parts” – Oct 2023 Nvest Nsights Q3 Newsletter
After a nice start to 2023, the market soured in the 3Q. Both stocks and bonds struggled against a backdrop of too many conflicting signals. Some data such as resilient employment and consumer spending suggests inflation is easing and economic recession may be avoided; but a contracting money supply, abruptly rising interest rates and energy prices, and uncertain government spending suggest economic pressure is building and is causing stock prices to contract.
Hamas’ attack on Israel over the weekend (on top of ongoing situation between Russia/Ukraine) seems to create additional fog in the short-run. We’ll continue to monitor what these developments may mean for the market. In the meantime, this quarter’s newsletter reviews:
- “Too Many Moving Parts” – we explain how many different moving parts not functioning together, can create a frustrating market environment with elevated volatility but no apparent trend.
- “New Reality” – Interest rates are now at their highest level in 16 years. While it feels unfamiliar, history would suggest rates at this level are not a bad omen for the future, but they do not make economic conditions easy either. How long might rates stay high if inflation is improving and what does it suggest for financial assets?
- “Flying Blind – Ecstatic Appreciation” – Bill offers quick reflection and appreciation for the opportunity to work with so many wonderful clients over his 45 year career. As throughout life, “Flying Blind” also offers relevant parallel as investors often feel foggy about the future.
- “The Wealth Feedback Loop” – the wealth effect can cause individuals to alter their consumption behavior, and we discuss why it is important to balance significant financial decisions with actual income rather than fluctuations in net worth due to market variables.
Click here for a Printer Friendly PDF which also includes benchmarking and data on investments widely utilized in our current tactical strategies.
The Wealth Feedback Loop
Engineers often utilize feedback loops when designing control systems. A feedback loop is a control that integrates the system’s output back into an input stream to control future operations. Here are some common examples of a feedback loop:
- Your home’s thermostat: As the temperature drops below a set target, the thermostat provides input to the furnace to activate and warm your home. When the temperature climbs above the desired setpoint, the thermostat signals your furnace to turn off.
- A microphone sends an input signal into an amplifier/speaker and the speaker generates sound. If the microphone is held too close to the speaker, it captures the sound from the speaker and creates an unintended “circular” loop; this generates an unpleasant “squeal” we are all familiar with.
- The NFL draft: Every year, teams with the worst record are provided the earlier opportunities to select the best players coming out of college. As these teams “rebuild” with more talented players, they should eventually improve their win-loss record and move down in the draft (in theory).
Moonwalking, No More? – Sept 2023 Commentary
On July 20, 1969, American astronaut Neil Armstrong became the first person to walk on the moon when he stepped out of Apollo 11 in an area called the ‘Sea of Tranquility’. Scientists suggest that the force of gravity is 5 to 6 times weaker on the moon than here on earth. Would that make you feel like you were almost floating as you walk or run? By contrast, Bill recently enjoyed a bicycling trip in Nova Scotia, Canada. He shared that on several days the force of gravity was very much on his mind as the route often felt like a never-ending climb. More than half the group riders opted for e-bikes, or bikes that are assisted by an electronic motor. When climbs occurred, those on e-bikes used “turbo-assist” to zoom by with ease. This experience is a lot like investing – gradual ups, then downs; some rises were fast and steep followed by a fall. [On a bike, the rise was work, and ride down was fun; in financial market, the rise is work and declines are frustrating.] We generally don’t think about gravity; we take it for granted unless falling out of bed. Nevertheless, it does act on everything, unlike being on the moon.
“Mission NOT Accomplished & Might Could” – Aug 2023 Commentary
Might Could
“Might could” is a southern way of saying “might.” It refers to a possible willingness or ability to do something. Grammatical “experts” claim you cannot link two verbs – “might” and “could” – next to each other unless one is a linking verb. “Might” is informal and used with less likely events (“May” is formal and used relating to actions more likely to happen). “Could” is used to express ability and often refers to past actions. How about a few more southern phrases…”I’m fixin’ to”; or “pitchin’ a fit”; “more than one way to skin a cat”; “you could drive a preacher to drink”; or “as all get out.” [Special thanks to our own Diane Carpenter, Client Concierge, for recently sharing about “might could”; that’s often how commentary titles arise!]