Hanging on the Fed’s Every Word

  • “Just because we removed the word ‘patient’ does not mean we will become impatient,” - Fed Chair Janet Yellen, on the Fed’s decision to strike the word “patient” from its latest policy statement, which led many analysts to assume a rate hike would be coming soon.
     
  • “Well, the Fed really said that it’s going to be more patient than it was before, even if it’s not officially so. In other words, it could hike rates at any time starting in June, but it’s less likely to do so. And even when lift off does happen, it’ll probably happen slower than people thought it would.” - Wonkblog.com, a Washington Post blog, noting that while the Fed dropped the word “patient,” its post-meeting statement struck a very cautious tone regarding future rate hikes.

Bond Market Bubble Watch

  • “We will not see a crash in the bond market unless central banks tighten monetary policy very sharply (by hiking short-term interest rates) or there is a major spike in inflation.” - Nobel Prize-winning Economist Robert Shiller, MarketWatch.com, 3/16/15

Watching the Curve

  • “We are taught that recessions do not occur until the Fed tightens aggressively and the yield curve inverts. While the yield curve has flattened significantly over the last year, it is far from inverted. Whether this historical rule will apply at zero gravity remains to be seen.” - Michael Lewitt, TheCreditStrategist.com, 3/1/15
     
  • “Why pay attention to the yield curve, i.e., the difference in interest rates paid by short term vs. long term treasury bonds? Here’s why: an inverted yield curve, i.e., short-term interest rates higher than long-term interest rates, is a nearly perfect warning of a recession 12 to 18 months in the future. In the last 100 years, it has had only one false positive (1966).” - SeekingAlpha.com, 3/20/15

Stocks Are Expensive…Or Not

  • “Valuations are stretched...there was only one previous time (during the tech bubble that popped in 2000) when valuations were higher than they are now. Bear markets and recessions can start from much lower valuations.” - John Mauldin, commenting on valuation work from dshort.com in his newsletter, FrontlineThoughts.com, 3/9/15
     
  • “...what has been considered the best-performing measure of markets [Enterprise value for the S&P 500] suggests that U.S. stocks are not expensive—are indeed priced fairly. This strongly suggests that the expected future returns for U.S. equities will be about their historic average. Those who have been using valuation as an excuse to stay away from equities are likely to be disappointed in their own market-timing skills.” - Barry Ritholtz, The Washington Post, 3/7/15

The Best Advice

  • “...there are good investment advisers out there. But what makes them good is not their predictions but their strategies for dealing with an uncertain future.” - Mark Hulbert, MarketWatch.com, 3/24/15

How to Become a Market Guru

  • “People are often rewarded for being right once in a row in the finance industry.” - Blogger Ben Carlson on how disturbingly little it takes to develop a following as a market forecaster, awealthofcommonsense.com, 3/5/15