Good Riddance to August 2010- Part 1 Bonds for Everyman

The gloom and doomers are still out in force today but facing a little headwind as the market is stable to up helped by home prices and consumer confidence. Apparently the bulls were on vacation this August or frozen from clicking on something to buy except bonds. However the bond bulls rule  led by PIMCO talking their book about 2% 10 year yields and the endless recession. Tech stocks were supposed to be the big movers but are down over 10% spooked by Intel and Cisco’s cautious forward looking anxiety. Trading volume on NASDAQ is at a Five Year Low. Who cares about equities when you can make 10% in safe bonds in 8 months? Bond trading strategies abound. Saturday’s WSJ on page B9 “Bond Tips for Yield Chasers” by Ben Levisohn speaks to the risks of chasing bond yields but junk bonds are still hot. Guggeheim Partners says put half your money in 15 year zero coupon treasuries and half in short term debt of junk-rated companies. JPMorgan has a mish-mash portfolio of all types of bonds that yields 3.4% with a hedge on interest rate risk. What used to be boring is now the only place for your money.

Aug 30 Barron’s has two cautious articles on bonds:

Vito Racanelli on p13 says the bond rally is overdone and equities are oversold . A contrarian indicator is developing .

An Interview with Michael Lewitt on p36 in the August 30 Barron’s has some excellent comments on the ” financial mess” the most important point being, ” a misallocation of capital toward speculative rather that productive activities.” Some of Lewitt’s recommendations are a payroll tax holiday, low capital gains taxes, and the banning of naked cradit default swaps.On equities Michael thinks stocks are cheap but could get cheaper but a PE of 12 is a good measure of value. He also likes double-B/triple-B bonds of large cap companies. However he is cautious on bonds with the interest rate under 2.5% for teh Ten Year so the “Black-Swan trade is betting on inflation.”

Volume hits new lows on NASDAQ:

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