Personal Finance

Global Macro: Markets Hostage to the Fed

twocents@thestreet.com (Andrew Sachais) — Tue, 18 Jun 2013 11:51:00 GMT

NEW YORK (TheStreet) -- Federal Reserve Chairman Ben Bernanke speaks on Wednesday, and markets are hoping to get some clarity over the longevity of U.S. monetary stimulus.

We now stand hostage to the 24-hour news cycle, which is speculating whether the Fed will tighten policy or keep it unchanged. Articles abound, and with each approaching day, assets continue to trade in tighter ranges.

The first chart below is of SPDR Barclays Capital High Yield Bond ETF over Barclays 7-10 Year Treasury Bond Fund, which measures the relative strength of U.S. junk debt over intermediate treasuries. ...

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Global Macro: When Bernanke Speaks, We All Listen

twocents@thestreet.com (Andrew Sachais) — Mon, 17 Jun 2013 12:00:00 GMT

NEW YORK (TheStreet) -- Global markets have been rattled the past few weeks by uncertainty over central bank stimulus.

In late May, the Federal Reserve released what looked to be foreshadowing comments about an end to quantitative easing, and more recently the Bank of Japan failed to relieve the volatility that had crept up in Japanese markets. With central banks playing such an important role in the daily movements of financial markets, anything they say or fail to say is sure to incite a fury of activity.

This week Fed Chairman Ben Bernanke will speak on Wednesday, and investors hope he clarifies his statements from last month in order to bring back stability to world markets. The Fed may be the first to rein in stimulus among the world's major central banks, but actual tightening does not look to be a viable solution until possibly 2014. ...

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3 ETFs for Determining Your Stock Allocation

twocents@thestreet.com (Gary Gordon) — Mon, 17 Jun 2013 10:00:00 GMT

NEW YORK (ETF Expert) -- U.S. stock investors have largely dismissed several market-moving forces from the previous decade. "Decoupling," rising interest rates, the yen carry trade -- many of the most powerful forces in the financial universe have been less relevant because the Federal Reserve is purchasing $85 billion in government and quasi-government bonds.

More recently, however, the uncertainties of yesteryear are nipping at the backsides of formerly undeterred bulls. Today, there appears to be acknowledgement that U.S. stocks cannot decouple from foreign stock assets indefinitely. Whereas U.S. stock participants had been fazed by neither Europe's recession nor the underperformance of emerging market equities, the recent deterioration of foreign stocks is beginning to weigh on U.S. shares.

Similarly, there seems to be recognition that if the Fed does slow its bond-buying endeavors, interest rates are likely to rise; indeed, Fed tapering chatter sent interest rates significantly higher, causing rate-sensitive assets across the income-producing spectrum to plummet. ...

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Diversifying ETFs and Portfolio Abuse

twocents@thestreet.com (Gary Gordon) — Sat, 15 Jun 2013 10:00:00 GMT

NEW YORK (ETF Expert) -- Recently, one of my clients referred a friend to Pacific Park Financial. The elderly gentlemen came to my office with a familiar dilemma. Specifically, he struggled to see the value of holding different asset classes in his portfolio. His investments had appreciated nicely over the years. What's more, he was proud of the fact that a 65% allocation to income assets had helped offset the severe setback that growth assets experienced in the 2008-2009 financial collapse. Nevertheless, he couldn't shake the feeling that "buying and holding" popular asset groups was starting to fail him. Without knowledge of the particulars, my guest had stumbled onto an inconvenient truth; that is, the Federal Reserve's quantitative easing program forced investors to move money to destinations that they ordinarily would not have considered. Moreover, the ever-changing uncertainty surrounding the future of the central bank's dollar printing and subsequent bond buying may be minimizing the benefits of spreading one's money across asset types. Does It Makes Sense to Diversify My ETFs? Approx 6 Months Vanguard Total Stock Market (VTI) 16.6% Total 16.6% S&P SPDR Trust (SPY) 16.1% iShares Russell 2000 (IWM) 20.5% Vanguard REIT (VNQ) 8.6% Vanguard Europe (VGK) 8.8% iShares Emerging Markets (EEM) -7.4% Greenhaven Continuous Commodity (GCC) -9.0% PowerShares Preferred (PGX) 0.6% SPDR Barclays High Yield Bond (JNK) 1.7% iShares Investment Grade Corporate (LQD) -3.2% iShares Barclays 7-10 Year Treasury (IEF) -3.0% Equal Weight Total 3.4% Most advisers recommend a minimum of 20% of one's stock holdings allocated to foreign countries. Other advisers are even more bold, suggesting that one weight their holdings by market cap such that 50% of one's stock holdings represent foreign companies. Keep in mind, the so-called "lost decade" of 2000-2009 was a lost decade for U.S. "buy-and-holders," not for those who owned emerging markets and foreign developed country stocks; international stocks compounded rather nicely in the period. Over the last six months, however, the U.S. stock market has dramatically decoupled from world equities; holding-and-hoping has only contributed to portfolio drag, not portfolio growth. Granted, six months can hardly be construed as a long-term horizon. Yet, even a bull market perspective demonstrates greater volatility/risk with foreign equities for significantly less reward. Note: The chart below compares the S&P 500 SPDR Trust versus the iShares All-World excl U.S. Fund.

Commodities? The global growth slowdown from China to Europe has decimated the prospects for alternatives like metals, materials, fertilizer and other natural resources. Investors had been doing alright with income investments like investment grade bonds, high yield bonds and preferred shares. On the other hand, the slightest hint by the Fed that it might start to taper has damaged the prospects of virtually all income producers. 30-year mortgages up from 3.4% to 4%-plus? A 10-year yield up from 1.60% to 2.25%? These are the types of five-week moves that have sent shivers down the spines of REIT investors, as well as owners of many income-oriented ETFs. Investors seem to be stuck, albeit temporarily, with the notion that the closest thing to a reasonable risk-reward exists with U.S. equities. Yet, even that is showing plenty of signs of cracking; daily Dow swings of greater than 100 points is rarely a vote of confidence, even when the closing price does settle near the flat line. In sum, I expect U.S. stocks to succumb to the selling pressure that has rattled virtually every other asset type. By the same token, I expect the Fed to strongly reassert its commitment to its current $85 billion per month in bond purchases in its upcoming June meeting. Fed officials will likely steer clear of the tapering talk that has rattled yield producers as well as the markets at large. The result? The investment community will eventually re-embrace funds such as iShares Preferred, iShares High Dividend Equity, Vanguard REIT as well as Pimco 0-5 Year High Yield. Note: Don't count on the Fed to help international equities or commodities. These assets will likely require foreign governments and foreign central banks to enact the easy-going fiscal and monetary policies that investors crave. Whether those ultra-accommodative policies are beneficial to respective economies is entirely another matter. ...

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Stock ETFs and the Yen

twocents@thestreet.com (Gary Gordon) — Sat, 15 Jun 2013 09:30:00 GMT

NEW YORK (ETF Expert) -- Investors who own individual municipal bonds, real estate investment trusts, corporate bonds and/or preferreds may not see the day-to-day volatility of their holdings. For one thing, individual bond prices may not update regularly on web sites; similarly, those who do not value the liquidity of ETFs are less likely to watch price movement of their individual REITs and/or preferred stocks.

On the other hand, ETF enthusiasts tend to be folks who have a plan to sell. They're not married to their investments. In fact, if an asset class is trending significantly lower, they may leave the asset class until it comes back into favor. In essence, exchange-traded fund fans are less inclined to "buy-n-hold."

The fact that you can trade ETFs is frequently regarded as an advantage. However, there are times when the power to decide when to hold and when to fold serves as a double-edged sword. For example, the recent upswing in interest rates initially created a rational market-based response whereby rate-sensitive income producers (e.g., high-yield bonds, preferreds, dividend stocks, etc.) fell in price. ...

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3 ETF Categories Correct 10% Or More

twocents@thestreet.com (Gary Gordon) — Fri, 14 Jun 2013 22:04:00 GMT

NEW YORK (ETF Expert) -- A fellow money manager recently tweeted, "I'm praying for bad econ news so that the Fed will keep buying bonds. I don't know what else to pray for." I felt the writer's pseudo-pain and promptly bit down on my lower lip. After all, think about what we celebrate in the investment universe today. We want the economy to sputter or meander, just so our central bank will push interest rates into the proverbial basement. We're addicted. Last week the U.S. Dow Jones Industrials rallied more than 200 points after learning that, for the third consecutive month, jobs increased by less than 200,000. The 175,000 new jobs in May beat watered down expectations, but job growth still remains far too anemic for the Federal Reserve to rein in its bond-buying program. In other words, rates will likely remain contained and U.S. stocks can continue to rally. Or will they? At least three ETF categories are struggling mightily. And while ongiong rate manipulation might help turn one category back around (i.e., REITs), it isn't going to help the other two segments (i.e., Asia-Pacific and Natural Resources). Let's take a closer look at these three groupings: 1. REIT ETFs. Real estate investment trusts are required to distribute 90% of their taxable income. The certainty of a distribution is attractive to income investors in much the same way that master limitted partnerships (MLPs) attract a legion of loyalists. By the same token, a 30-year fixed mortgage rising from 3.4% to 4%-plus has already hindered refinancing demand and might take a toll on home-buying itself. In turn, REIT ETFs became particularly vulnerable to Fed "tapering talk."

If funds like Vanguard REIT can discover support at a 100-day, intermediate average, however, the brutally quick correction may end as quickly as it began. Why? For one thing, the U.S. job market as well as the economy as a whole will remain sub-par. That will keep the Fed on its bond-buying binge whereby rate sensitive ETFs like VNQ could respond. For the moment, though, the overwhelming majority of REIT ETFs are down more than 10% from a 52-week high. Additionally, they sit below their respective 100-day trendlines, which may make them "falling knives" rather than bargain buys. The list of sad-sacks include: First Trust S&P REIT, iShares FTSE NAREIT Residential, SPDR DJ REIT, SPDR DJ Global REIT and iShares DJ Real Estate. 2. Asia-Pacific ETFs. Having lived on and off in the region for a number of years in the 1980s and 1990s, few investment advocates have believed as strongly in China's economic rise as well as the Asian neighbor theme; that is, China's rapid internal growth benefits neighboring countries that can provide the second-largest economy with products and services. More recently, the Asia-Pacific investing theme has fallen on hard times. China's manufacturing sector has been slowing and its leaders have been less willing to "stimulate" through monetary easing. What's more, Japan's massive yen devaluation has made the products of other countries in the region less competitive.

It may take a while for Asia-Pacific ETFs to recover their mojo. For now, it makes more sense to resist the urge to swing for the fences. Struggling country ETFs include: iShares MSCI Thaliand, Market Vectors Indonesia , iShares MSCI Philippines, iShares South Korea and iShares Singapore. 3. Natural Resources ETFs. In the same manner that China's growth slowdown has adversely affected country ETFs in Asia, corporations involved in raw material production and distribution are hurting. Not only are fertilizer producers and metal miners having difficulty exporting to China, six consecutive quarters of recession in the eurozone is about as disturbing as it gets. Severe downtrends have occurred in funds like iShares Global Materials, Global X Fertilizer/Potash, WisdomTree Global Natural Resources as well as SPDR S&P Global Natural Resources. ...

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How to Leave an IRA to Your Heirs

twocents@thestreet.com (AdviceIQ) — Fri, 14 Jun 2013 16:00:00 GMT

By Blair Hodgson DuQuesnay NEW YORK (AdviceIQ) -- Individual retirement accounts and qualified plans such as 401(k)s can be wonderful assets to leave to your heirs. But you need to do some extra planning to make sure the money goes to the right family members and minimize their tax bill.

Some folks are confused because IRAs and retirement plan assets pass to your heirs based on beneficiary forms and not by the instructions in your will. It's also hard to tell how long your beneficiaries may keep the money in the tax-deferred account.

If you plan to leave the assets to minor children, create a trust for them and name the trust as the beneficiary of the retirement account. Minor children are unable to legally accept an inheritance until they reach the age of majority, which is either 18 or 21 depending on your state. ...

How to Survive the Bond Fund Crash

twocents@thestreet.com (Roger Nusbaum) — Fri, 14 Jun 2013 13:32:00 GMT

NEW YORK (TheStreet) -- The last few weeks have been rough for equities and fixed income. The most notable decline has been the 20% decline in the Nikkei 225 Index in just 17 trading days. Interest rates have also moved up in the last few weeks on concerns of a so called tapering by the Fed which has hurt just about every type of yield oriented fund.

For years now many market pundits have been calling for rates to normalize back to higher levels and when this occurs it will likely result in serious price declines. It is impossible to know whether that has started yet but the market is trading like it is possible. One segment that has been hit has been closed end funds. In the last three weeks the PowerShares CEF Income Composite Portfolio has dropped more than 7%.

Closed end funds issue a set amount of shares so a large wave of selling or buying in the open market can cause the quoted market price to deviate from the net asset value of the underlying portfolio. This dynamic means that closed end funds are often prone to panicked moves even when the fundamentals of the portfolio are still sound. In the last month the PIMCO Corporate Bond Opportunity Fund is down 15% compared to less than a 2% drop for that fund's net asset value. There are plenty of other closed end funds that have put in similar showings in the last few weeks. Also see: The 5 Dumbest Things on Wall Street This Week: June 14 >> ...

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Global Macro: Monetary Policy Driving Markets

twocents@thestreet.com (Andrew Sachais) — Fri, 14 Jun 2013 12:33:00 GMT

NEW YORK (TheStreet) -- Quantitative easing across the globe has conditioned investors to play along with central banks in order to reap maximum benefit. The issue now is going back to an environment where fundamentals drive markets, not monetary policy.

This article highlights movements of global markets this past week through an observation of currency markets.

The first chart is of Guggenheim CurrencyShares Euro Currency Trust over DB USD Index Bullish. It looks at the relative strength of the euro over the U.S. dollar. ...

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Difficulty Confirming Market Top

twocents@thestreet.com (Richard Suttmeier) — Fri, 14 Jun 2013 11:42:00 GMT

I was on Yahoo Finance Breakout on Thursday afternoon explaining the technical conditions that are necessary to confirm the May 20, May 22 highs for the five major equity averages; the Dow Industrial Average, the S&P 500, the Nasdaq, the Dow transportation average, and the Russell 2000. Here's the video: Friday's Close Will Determine if the Top Is in for Stocks: Suttmeier.

In my career I have always found it easier to call a market bottom than to call a market top. At a top it seems like momentum just won't stop as the bulls continue to buy weakness. At a bottom no one wants to buy, and that's when stocks are at their cheapest and the old-school dollar-cost averaging method is tossed out. Dollar-cost averaging is an important ingredient of my buy-and-trade strategy. The problem at a bottom is that investors neglected to book profits and raise cash at the prior top.

If the five major averages close unchanged from Thursday's strong closes the 12x3x3 weekly slow stochastic readings will be; 82.40 vs. 85.72 last week for the Dow Industrials, 80.38 vs. 83.76 last week for the S&P 500, 85.28 vs. 86.73 on the Nasdaq, 75.23 vs. 77.42 on Dow Transports, and 82.73 vs. 82.79 last week for the Russell 2000. All readings need to be declining below 80.00 to flag a momentum warning. ...

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BDCs Are Senior to Junk Bonds and Yield More: Oppenheimer

twocents@thestreet.com (Dan Freed) — Wed, 12 Jun 2013 16:20:00 GMT

NEW YORK (TheStreet) -- Business Development Companies (BDCs) have cheapened due to a recent selloff, and now offer higher yields than junk bonds despite better credit and interest rate protections, according to a report published Tuesday from Oppenheimer & Co. analyst Chris Kotowski.

Business Development Companies offer debt and equity financing to small and mid-sized companies. The average BDC now yields 9.9%, according to Kotowski.

The vehicles "should certainly be attractive relative to high-yield bonds," Kotowski writes. "BDC dividends were historically lower than high-yield bond rates, but are now 1.56% richer. Given that BDCs invest primarily in loans that are senior to bonds, and frequently at floating rates, and there is an opportunity for growth, we think BDCs should yield less than bonds." ...

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Global Macro: Emerging Markets Are Taking a Beating

twocents@thestreet.com (Andrew Sachais) — Wed, 12 Jun 2013 14:53:00 GMT

NEW YORK (TheStreet) -- The Bank of Japan's decision to not do anything further with monetary policy left markets unsettled on Tuesday, and the general fear of what central banks will or will not do next has emerging market investors on their toes.

The pair below is of JP Morgan Emerging Markets Bond Fund over Barclays 7-10 Year Treasury Bond Fund, which measures the relative demand for emerging market fixed income. Over the past six months the price action has oscillated within a sideways pattern, indicating indecision over future direction.

Central bank easing taking place across the world has pushed funds into emerging markets, which outperform when the U.S. dollar is weak. Starting in 2013 the U.S. dollar rallied, which had adverse affects on the pair below. ...

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Some Top Funds Are Dumping Bonds

twocents@thestreet.com (Stan Luxenberg) — Wed, 12 Jun 2013 12:43:00 GMT

NEW YORK (TheStreet) -- Bond funds have been struggling. The average intermediate-term fund dropped 1.9% during the past month. Rising interest rates have caused the losses. When rates climb, bond prices tend to fall. Is it time to start trimming your bond holdings? Some top-performing fund managers think so. These managers oversee balanced funds, which hold mixes of stocks and bonds. Lately the funds have been lowering their allocations to fixed income.

The shift by the managers is worth considering because the funds have all shown deft timing in the past. During the stock downturn of 2008, the managers moved into fixed income, helping to protect shareholders. All the funds finished in the top quarter of Morningstar's moderate allocation category for the past five years. The strong performers include Franklin Income , Madison Diversified Income , Villere Balanced Fund and Westwood Income Opportunity .

Ed Perks, portfolio manager of Franklin Income, has made a particularly dramatic move. Concerned about shaky stock markets in 2011, Perks had two-thirds of assets in fixed income and one third in equities. But now he has reversed the allocations, putting about two thirds in equities. "We lost interest in fixed-income as the market went through a transition in recent years to lower yields," he says. ...

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Salmon: Why Capital Gains Should Be Taxed as Income

twocents@thestreet.com (Felix Salmon) — Tue, 11 Jun 2013 10:00:00 GMT

NEW YORK (Reuters Blogs) -- The recent Munk debate featured one of those strange-bedfellow moments, when Paul Krugman agreed with Art Laffer that the tax rate on capital gains should be the same as the tax rate on income. (In fact, Laffer went one step further than that, saying that even unrealized capital gains should be taxed at the same rate.) Normalizing the capital-gains tax rate so that it's the same as the income-tax rate is an easy way to bring a lot of money into the public treasury -- some $161 billion per year, according to the CBO. So why aren't we doing it?

Evan Soltas does his best to answer that question with his "Defense of the Capital-Gains Loophole." Here's the meat of his argument: Most tax breaks create distortions. The tax break for capital gains does the opposite: It reduces a distortion. Investment is really deferred consumption. Taxing consumption tomorrow at a higher rate than consumption today -- which is what a tax on investment income does -- encourages people to shift consumption forward in time, and that's inefficient.

This doesn't make a lot of sense. Firstly, investment really isn't deferred consumption. The amount of money invested, in the world, is going up over the long term, not down -- which means that once you look past the natural tidal movements of money in and out of various investment vehicles, it's reasonable to say that money, once it gets invested, stays invested. Pretty much forever. The amount of money being saved, plus the amount that the investments have grown, is nearly always going to be greater, in aggregate, than the amount of money being withdrawn for the purposes of consumption. That's the inefficient thing: money that could be cycling through the economy at high velocity is instead tied up in investment vehicles, and might not be spent for decades, if at all. ...

Global Macro: Jobs Report Hits Bonds

twocents@thestreet.com (Andrew Sachais) — Mon, 10 Jun 2013 12:00:00 GMT

NEW YORK (TheStreet) - Employment data, released Friday, gave much needed direction to global financial markets that had remained range-bound and volatile since the Federal Reserve hinted at a premature end to its quantitative-easing program.

Bond markets reacted sharply to the news, pushing yields a few basis points lower. U.S. equities rose around 1%, and now through the use of intermarket analysis, we can take a closer look at the developing trends in fixed income.

The pair below is of S&P Equal Weight ETF over Investment Grade Corporate Bond Index Fund. It measures investor sentiment on the current economic climate. ...

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Bad Economic News and Stock ETFs

twocents@thestreet.com (Gary Gordon) — Sat, 08 Jun 2013 10:00:00 GMT

NEW YORK (ETF Expert) -- In recent weeks, stock market volatility has been rising due to uncertainty surrounding whether or not the Federal Reserve would curb its money-printing-for-bond-buying program. Yet, this week's data, coupled with comments by Fed officials, should have assuaged fears related to the tapering of those bond purchases.

For example, U.S. manufacturing data via the Institute of Supply Management (ISM) logged its worst reading in four years. Similarly, the folks at Bespoke presented research that showed positive economic surprises at a 15-year low. Who is going to claim that the economy is on solid footing with stats like these?

Meanwhile, a governor of the Federal Reserve's board publicly expressed that the 7.5% rate of unemployment understates the scope of the unemployment dilemma. Similarly, Fed Bank of Atlanta President Dennis Lockhart reaffirmed the central bank's commitment to emergency stimulus. ...

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Guggenheim ETF Delivers Reliable Income

twocents@thestreet.com (Stan Luxenberg) — Fri, 07 Jun 2013 12:56:00 GMT

NEW YORK (TheStreet) -- Bond investors have taken some lumps lately. During the past month, the Barclays Capital U.S. Aggregate bond index lost 1.6%, according to Morningstar. The slump was triggered by rising interest rates. When rates rise, bonds tend to fall. The hard going has left many investors struggling to find steadier income vehicles.

One solution could be ETFs that hold diversified collections of income sources. Besides foreign and U.S. bonds, the funds own dividend-paying stocks from around the world. The diversified ETFs, which yield 4% to 5%, have proved relatively resilient in the past month. Solid choices include Guggenheim Multi-Asset Income ETF , iShares Morningstar Multi-Asset Income , and SPDR SSgA Income Allocation ETF

A top performer is Guggenheim Multi-Asset Income, which yields 5.2%. The fund holds half a dozen different kinds of securities, including REITs and preferred shares -- which pay bond-like yields. The fund always keeps at least 50% of assets in dividend-paying stocks. Holdings include such blue chips as Verizon and pharmaceutical giant Merck . The portfolio currently has 9% of assets in master limited partnerships (MLPs), which own pipelines and other assets that generate rich income. Boosted by the big stock stake, the fund returned 11.6% this year, compared to a loss of 1.0% for the Barclays Capital U.S. Aggregate index. ...

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WisdomTree Japan Currency ETF Hits a Stumbling Block

twocents@thestreet.com (David Fabian ) — Thu, 06 Jun 2013 10:00:00 GMT

NEW YORK (Fabian Capital Management) -- One of the hottest ETFs of the year has been the WisdomTree Japan Hedged Currency ETF, which hit an intraday high in May and has since fallen nearly 18% over the last 10 trading sessions.

Prior to this selloff, DXJ had posted gains of over 46% in 2013, which put it in the top 1% of ETF performers this year. According to Index Universe, DXJ is the top gatherer of new assets this year, with investors pouring over $7.6 billion of new money into this surging economy.

As you can see on the chart below, DXJ has fallen below its 50-day moving average and appears poised to continue its recent descent. At times like these I am reminded of the adage that "the bigger they are, they harder they fall." This appears to be the case with DXJ as early investors are more than likely taking profits and standing aside at this juncture. ...

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Quick Take: Gold, Platinum Shaken by Foreign Events

twocents@thestreet.com (Bret Kenwell) — Wed, 05 Jun 2013 16:12:00 GMT

NEW YORK (TheStreet) -- TheStreet's Gregg Greenberg talked with Will Rhind, the managing director of ETF Securities, Wednesday about the impact of foreign events on precious metals. Gold prices were down yesterday after India's Reserve Bank said it was "discouraging gold buying in the country," Rhind said. Since the sell-off in gold occurred several months ago there has been a large increase in demand for physical gold, particularly gold jewelry. The yellow metal has significant cultural importance India, where it is widely used in weddings and other events. With the recent correlation to negative news, Rhind expects gold to get a pop from the U.S. nonfarm payrolls job report on Friday if the data are overwhelmingly bad. Other metals, particularly palladium and platinum, have also suffered from world events. Investors are worried about South Africa, the largest producer of platinum and second-largest producer of palladium, due to its weakening economy and the multiple strikes with the mining companies there. However, Rhind said, the Physical Platinum ETF has seen a large inflow, suggesting some investors may believe this to be a buying opportunity. "I think that's partly due to concerns over supply in South Africa," he said. ...

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Mutual Funds for Cautious Investors

twocents@thestreet.com (Stan Luxenberg) — Wed, 05 Jun 2013 15:32:00 GMT

NEW YORK (TheStreet) -- With markets heading for the summer doldrums, this could be a time to consider cautious balanced funds, which hold mixes of stocks and bonds. Balanced managers aim to provide mild-mannered vehicles that can deliver some gains in bull markets and avoid the worst losses in downturns. The steady approach has worked admirably in the erratic markets of the past decade. During the last 10 years, the balanced funds in Morningstar's moderate allocation category returned 7.7% annually, outdoing the S&P 500 slightly while taking less risk.

Classic funds in the moderate allocation category hold about 60% of assets in blue-chip stocks and most of the rest in high-quality bonds. But a few managers spice up the fixed-income recipe by including convertibles, preferred shares or other instruments. These wide-ranging portfolios could be sound choices at a time when interest rates have been climbing. When rates rise, bond prices tend to sink. But convertibles can be more resilient, sometimes gaining when most bonds are falling.

Like bonds, convertibles make fixed interest payments. Convertibles currently yield 2.6% on average. The interest payments tend to prop up values during periods when investors become nervous. When stocks are rising, convertibles can be converted into common shares. As a result, convertibles can deliver some of the upside of stocks. ...

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The Lowdown on Deutsche's New Bond Fund

twocents@thestreet.com (Roger Nusbaum) — Wed, 05 Jun 2013 12:35:00 GMT

NEW YORK (TheStreet) - Deutsche Bank has quietly built a line of unique exchange-traded funds. This week, it expanded its lineup with the db X-trackers Municipal Infrastructure Revenue Bond Fund.

The municipal bond market typically divides into two categories: general obligation bonds, which are back by the credit and taxing power of the state, and revenue bonds, which are tied to an income stream like tolls collected on a bridge or highway.

Before the financial crisis, it was generally accepted that general obligation, or GO, bonds were safer than revenue bonds, but with so many states facing financial problems, investors gravitated to revenue bonds because the revenue in question must go toward interest payments as stipulated in the bonds' covenants. ...

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U.S. Stock Market Foreshadows Another Rally

twocents@thestreet.com (Chris Vermeulen) — Tue, 04 Jun 2013 15:36:00 GMT

NEW YORK (TheGoldAndOilGuy.com) -- Over the past couple of weeks investors and traders have been growing increasingly bearish on the U.S. stock market. While I also feel this rally is getting long in the tooth, there is no reason to exit long positions and start shorting.

My followers know I do not pick tops and I do not pick bottoms. There are more cons to that tactic and on several different levels (timing, volatility, emotions, lack of experience, addiction) than there are pros.

Keeping things simple, short and to the point here is my thinking for today and this week on the broad market. Remember, my analysis is 100% technically based using price, volume, cycles, volatility, momentum and sentiment. I try not to let any emotions, gut feel or bias flow into my projections. I say "try" because I am only human and at times when the market and emotions are flying high they still take control of me. (However, those times are few and far between.) ...

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Global Macro: The Importance of This Week's Employment Data

twocents@thestreet.com (Andrew Sachais) — Mon, 03 Jun 2013 17:33:00 GMT

NEW YORK (TheStreet) -- All eyes remain on the nonfarm employment data due out on Friday. Financial markets have speculated about the future of U.S. quantitative easing, and the jobs picture remains one of the most important factors. The real question is whether the data are as important as many analysts think. Inflation remains on the decline and nonfarm payrolls remain below the needed 200,000 four-week moving average that is suitable for real economic sustainability. Although financial markets discount future information, it may discounting too steeply. Even if the number shows an improving economy, it may not be until the end of 2013 or beginning of 2014 that tightening comes into effect. The release of weaker-than-expected manufacturing data on Monday and an overall tepid global economy will play a role in the Federal Reserve's rate decision as well, and these issues look to be many quarters away from a solution. Considering all of the normative economic theory that has just been spewed, financial markets have deemed this week of economic data as being important. >>Also see: Japan Stimulus Gives U.S. Stocks Another Jolt >> The pair below is of Financial Select Sector SPDR over S&P Equal Weight ETF. The financial sector has spiked higher as interest rates have been driven up. The fear of an end to the Fed bond-buying program has led to a selloff in both fixed-income and high-dividend-yielding products. The main beneficiary has been financials. A appreciating rate environment leads to stronger profits. If nonfarm payrolls show a stronger number, this pair should jump and financials should break higher across the board.

The next pair is of Barclays TIPS Bond Fund over Barclays 7-10 Year Treasury Bond Fund. This pair measure inflation expectations in the U.S. economy. Inflation is another key factor in determining when the Fed will rein in easing measures. To this point the pair looks to be on a strong downtrend. It is currently hovering around multiyear lows and until a stronger economic environment develops, the pair should stay at depressed levels. What this means for easing is there is more room for stimulative policies. Rates look to be unjustified in their move higher and should fall in the intermediate term. When the economic data have been resolved, and the economy remains a mixed bag of results, we should return to the idea that Fed intervention is still needed.

The last pair is of DB USD Index Bullish over an equal weight DB Commodity Index Tracking Fund. This pair represents the relative strength of the dollar versus commodities. A weak global inflation picture, accelerating equities markets, and positive economic data has pushed the dollar higher. >>Also see: U.S. Companies Rank Poorly On Paid Vacation >> It has not been the end of QE as much as it has been a relatively weaker global environment than the U.S. Japan continues to stimulate aggressively, a weaker China has left the Australian and New Zealand currencies suppressed, and record high unemployment has weighed on the euro. It has been the relativity of fiat currencies that have buoyed the dollar. In short, this week will be volatile due to a plethora of economic data released but when the dust settles the U.S. economic picture will remain little changed. The economic picture is what really concerns the Fed. ...

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Time to Ditch Low Volatility Funds?

twocents@thestreet.com (Roger Nusbaum) — Mon, 03 Jun 2013 15:40:00 GMT

NEW YORK (TheStreet) -- In order to try to combat the stock market's volatility from the last 10 years, many investors have invested in funds that target a lower volatility than the S&P 500. The funds started to appear a few years ago and the sector has grown dramatically. And for good reason: many low-volatility indexes have outperformed the S&P 500 over long periods of time.

The funds had also been performing well recently over short periods of time. The biggest low volatility fund is the PowerShares S&P 500 Low Volatility Portfolios. It has attracted almost $5 billion in assets in just over two years, and since its inception, it has outperformed the SPDR S&P 500 by three percentage points and has done so with less volatility.

This past month, however, SPLV dropped 3.8% versus a gain for SPY of 2.3%. Whether the poor performance last month was because the Fed is continuing to force investors into risky assets or because interest rates have risen recently, the results prompted Barron's to ponder whether the "low beta bubble is deflating." Beta is a measure of volatility where the higher the beta, the more volatile a stock or fund is believed to be. ...

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Where Are All the Baby Boomers Going?

twocents@thestreet.com (Andrew Tignanelli) — Mon, 03 Jun 2013 13:00:00 GMT

NEW YORK (TheStreet) -- If you don't think our founding fathers were brilliant, just consider the bold initiative they launched to create competition of governments -- one sovereign nation made up of multiple sovereign governments. Yet unlike other areas of the world with multiple nations bordering each other, these sovereign governments allow for the free flow of people and goods across the borders of governments within the one nation. Therefore if a government gets too burdensome in taxation and regulation, you can pack up and move.

There has been strong debate regarding the impact of taxation increases and decreases on the mobility of citizens, but no solid data have been made available, since people and businesses use multiple factors in a decision to stay or leave. Also see: 7 Keys in Timing Stock Market Tops

Yet it appears as if times are changing with baby boomer retirements and the ongoing technological revolution. There are four main criteria as to where people and businesses dwell that governments need to be more mindful of in the future: ...