Financial professionals are blaming the latest round of risk asset uncertainty on a variety of factors, from the continuing sell-off in oil to the possibility of Greece being kicked out of the euro-zone. Still others are pointing to anxiety over the U.S. federal reserve's intention to raise its overnight lending rate target in mid-2015 – the first move of its kind since December of 2008.
Meanwhile, the biggest names in bonds have added fuel to the fire. Bill Gross at Janus has declared that the good times are over; he anticipates a plethora of “minus signs” in front of riskier asset classes by year-end. Similarly, Jeff Gundlach of DoubleLine believes the U.S. 10-year yield will test 1.38% from its 2.0% level. That is in sharp contrast to the unanimous verdict of economists that the 10-year would be sharply higher; the average expectation is 3.0% by December.
Since the beginning of last year, I have argued the exact opposite and extolled the virtues of owning long-maturity treasuries via Vanguard Extended Duration (EDV) and/or Vanguard Long Term Government Bond (VGLT). The yields on these safer havens have been more favorable than the sovereign debt of beleaguered foreign governments in the developed world. Even today, a 10-year U.S. Treasury at 2.0% compares quite favorably with German bonds (0.5%) and Japanese government bonds (0.3%).
A wide variety of international and emerging market stock assets floundered in 2014, and they have continued to descend in the New Year. Yet it may come as a shock to some buy-the-dip enthusiasts that many U.S. stock ETFs have already broken below key support levels. The ones that I have identified in the chart below are currently below 200-day long-term trendlines (exponential).
