I’ve been thinking a lot about fixed-income lately. Particularly, corporate credit.
Investors have been scared of the markets lately due to issues regarding the Eurozone crisis vis-a-vis Greece and political turmoil around the world. The Federal Reserve’s policy of quantitative easing and low interest rates through 2014 has assured investors they will find no yield in Treasurys, savings accounts, CDs or money market funds.
Thus, in order to get yield, you need to put on risk. This in turn has done two things: flooded the market with demand for U.S. equities (Dow 13,100 right now, S&P 500 trying to break 1400) and corporate credit. The flow of cash into these sectors has made it easy to for corporations to borrow at a decent rate and the U.S. equity market is a non-stop rocketship to the moon.
In short, if you’re looking for a 1-2 year plan, go with stocks and corporate bonds. Thank your central banker for this.
Over the past few weeks I’ve been examining the U.S. equity market and have come to the unique conclusion that the PPT is back in business. The Dow Jones Industrial Average is about to flirt with 13,000 and more importantly, the S&P 500 continues to hover above 1300, not breaking resistance technicals.
Between Bernanke’s guarantee of QE3 through 2014 and horrifying volumes across equities, there is essentially nowhere to go but up for now, save for the occasional pullback.
It is a great time to be a trader because the market is directional and volatility is about as low as it gets right now. Might be a good idea to switch your 401k or whatever into some low-cost S&P 500 index funds or something. A little TIPS exposure won’t kill you either.