Our main export over the last 20-plus years has been the U.S. dollar. We've run up huge trade deficits, sending dollars over seas to China, Japan, Korea, the EU, the Middle East, and to anyone else who would take them in exchange for their goods. The virtuous cycle has worked until now because the giant vendor financing scheme suited every one's interest. U.S. consumers got cheap goods from overseas and were allowed to spend beyond their means by borrowing cheaply. Export led foreign economies were able to sell into one of the largest consumer economies in the world, keeping their labor forces employed and running up huge surpluses in the process (reserves are a wonderful thing when hard times hit, since you have to pay back international debt regardless of whether you're earning sufficient currency or not).
But what to do with the tsunami of dollars flooding their shores? How to avoid the Renminbi, Yen, Won, Baht, Peso, and Real, among others, from strengthening and thus decreasing the competitiveness of their goods in the world market? Why, recycle all of those excess dollars back into the U.S. by purchasing the (until now) safest investment in the world - U.S. Treasuries. Buying U.S. Treasuries with surplus dollars had the beneficial side effect of keeping U.S. interest rates far lower than they would otherwise have been, in turn stimulating the U.S. consumer to take on even more cheap debt with which to buy more foreign goods.
Clearly though the trend was unsustainable and had to come to an end eventually. At some point the foreign vendors financing our purchases would want to get something tangible in exchange for their store of paper money. Now it increasingly appears that the end is near as America's policy of dollar debasement is obviously vexing the foreign holders of U.S. debt.
China, in particular, appears to be signaling that it is serious about ending the trend. The Chinese have accumulated some $2.2 trillion in U.S. debt, primarily U.S. Treasuries. but lately they have been signaling an end to unlimited Treasury accumulation. Instead they have been diversifying away from US Treasuries by using the roughly $200 billion accumulated each quarter to buy other currencies and assets. More ominously for the U.S. Treasury market, the Chinese are now indicating a desire to actively sell Treasuries in order to buy U.S. strategic assets, according to Chinese official Li Daokui in a statement made at the World Economic Forum.
"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way," Li said at the Forum. "Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries," he went on to say. HELLO?
The Chinese liquidating their Treasury holdings isn't a dollar negative if they use the proceeds to buy American assets, but it could send the bond market reeling, driving up interest rates and throwing the United States into recession in the process. The Federal Reserve is already financing the entire budget deficit (and has been for almost two years now). Is the Fed ready to prostitute its balance sheet further by stepping into the breach to buy China's Treasuries if they follow through with their plans to swap out T-bonds for hard assets? Perhaps. But will the rest of the world allow the Fed to get away with it for long? Not likely....
Dollar dumping by the major holders of our debt is a growing possibility, with serious consequences likely, not the least of which are rising interest rates and an economy in recession. Neither bonds nor stocks will weather that particular storm very well.....
Thursday, September 15, 2011
Monday, September 12, 2011
Recession All But Certain
The government likes to spin the numbers as does Wall Street. Politicians seek re-election and Wall Street seeks transactions. You will almost never hear a fee-based Advisor, insurance agent, or product selling financial planner (all distributors of Wall Street's products) tell you that now is NOT a good time to buy, because they make most of their money from the commissions they get when they sell you something. The positive spin coming from Wall Street economists is often nothing more than cover for their product selling compatriots.
But the data now strongly suggest that we are either already in or will soon be in another recession. The deterioration in financial and economic measures that provides a unique signature that always and only is observed during or immediately prior to U.S. recessions is in place. These include a widening of credit spreads on corporate debt versus six-months prior, the S&P 500 below its level of 6 months prior, the Treasury yield curve flatter than 2.5% (10-year minus 3-month), year-over-year GDP growth below 2%, ISM Purchasing Managers Index below 54, year-over-year growth in total non-farm payrolls below 1%, as well as important corroborating indicators such as plunging consumer confidence. The evidence has 100% sensitivity (these conditions have always been observed during or just prior to each U.S. recession) and 100% specificity (the only time we observe the full set of these conditions is during or just prior to U.S. recessions), according to Dr. John Hussman
We have been forecasting a bear market (20%-40% decline) since late last year with the most likely starting period the spring of 2012 and the second most likely starting period the fall of 2011. The S&P 500 is at 1137 as we write, having peaked in April at 1370.58. A 20% to 40% decline would put the S&P 500 in a range of 822 - 1096. We are mindful of the fact that average valuation for the S&P 500 over the very long term, based on average 10-year trailing earnings, replacement cost analysis, and the dividend growth model is in the 900 range. Our conclusion is that we will likely see 900 or thereabouts in the coming bear market if the European sovereign and banking situation is contained. We could quite possibly see 500 on the S&P 500 if it is not (although 500 might seem like a mind-boggling number to many investors, it should be remembered that we hit 666 intra-day in March of 2009). It's probably also worth pointing out the 500 on the S&P 500 would be about right as a starting point for the next great secular BULL market based on past valuations in 1919, 1946, and 1982. For the record, we are not anticipating a decline to 500, believing that 800-1000 is the more likely floor. But we do feel it's a number worth mentioning since the European banking and sovereign debt crisis could very easily spin out of control, sucking the U.S. (courtesy of our hyperactive Central Bank) into the maelstrom.
Biechele Royce Advisors is continuing to buy good companies when we can find them on sale. We are emphasizing dividend paying blue chip stocks with defensive characteristics. We are watching high-yield bonds with interest and believe a buying opportunity will present itself within the next year. We are still overweight non-dollar assets as we continue to believe that the wildly inappropriate monetary policy currently being conducted in the U.S. has a high probability of sparking strong inflationary pressures before all is said and done. Finally we are waiting to put excess cash to work should we be fortunate enough to experience a market cleansing decline into the 800-1000 area. We have a long and growing list of good companies that we'd love to own at the right price!
But the data now strongly suggest that we are either already in or will soon be in another recession. The deterioration in financial and economic measures that provides a unique signature that always and only is observed during or immediately prior to U.S. recessions is in place. These include a widening of credit spreads on corporate debt versus six-months prior, the S&P 500 below its level of 6 months prior, the Treasury yield curve flatter than 2.5% (10-year minus 3-month), year-over-year GDP growth below 2%, ISM Purchasing Managers Index below 54, year-over-year growth in total non-farm payrolls below 1%, as well as important corroborating indicators such as plunging consumer confidence. The evidence has 100% sensitivity (these conditions have always been observed during or just prior to each U.S. recession) and 100% specificity (the only time we observe the full set of these conditions is during or just prior to U.S. recessions), according to Dr. John Hussman
We have been forecasting a bear market (20%-40% decline) since late last year with the most likely starting period the spring of 2012 and the second most likely starting period the fall of 2011. The S&P 500 is at 1137 as we write, having peaked in April at 1370.58. A 20% to 40% decline would put the S&P 500 in a range of 822 - 1096. We are mindful of the fact that average valuation for the S&P 500 over the very long term, based on average 10-year trailing earnings, replacement cost analysis, and the dividend growth model is in the 900 range. Our conclusion is that we will likely see 900 or thereabouts in the coming bear market if the European sovereign and banking situation is contained. We could quite possibly see 500 on the S&P 500 if it is not (although 500 might seem like a mind-boggling number to many investors, it should be remembered that we hit 666 intra-day in March of 2009). It's probably also worth pointing out the 500 on the S&P 500 would be about right as a starting point for the next great secular BULL market based on past valuations in 1919, 1946, and 1982. For the record, we are not anticipating a decline to 500, believing that 800-1000 is the more likely floor. But we do feel it's a number worth mentioning since the European banking and sovereign debt crisis could very easily spin out of control, sucking the U.S. (courtesy of our hyperactive Central Bank) into the maelstrom.
Biechele Royce Advisors is continuing to buy good companies when we can find them on sale. We are emphasizing dividend paying blue chip stocks with defensive characteristics. We are watching high-yield bonds with interest and believe a buying opportunity will present itself within the next year. We are still overweight non-dollar assets as we continue to believe that the wildly inappropriate monetary policy currently being conducted in the U.S. has a high probability of sparking strong inflationary pressures before all is said and done. Finally we are waiting to put excess cash to work should we be fortunate enough to experience a market cleansing decline into the 800-1000 area. We have a long and growing list of good companies that we'd love to own at the right price!
Tuesday, August 23, 2011
Common Mistakes with Wills
Your Will can have a major impact on your family (including your spouse), friends, and favorite causes after you're gone. It is all too common for someone to die without a will, ensuring that their wishes aren't honored in death. Wills allow individuals to specify how they want their assets divided up after they are gone and can greatly impact the individual's legacy - assets distributed smoothly and in accordance with the individual's wishes, or squabbling and legal challenges that can cause hurt feelings and ill-will among your loved ones.
A second common mistake is making surprise decisions on who gets what, which can also lead to hurt feelings and family conflicts. Most people do not want spouses, children and other relatives fighting over their assets when they are gone, but that is exactly what can happen if they don't take the time to explain to their heirs what they plan.
Cutting out a spouse is surprisingly common, but unless you have a prenuptial agreement, your spouse is entitled to receive up to one-half of your estate, whether you write it into your will or not. Have your spouse sign a waiver before your death or expect your estate to face claims afterwards.
At the other end of the spectrum are those individuals who are in a second marriage and leave everything to their spouse. The children from the individual's first marriage can end up with nothing after the spouse dies if he/she has remarried in the interim. One solution is to set up a marital trust within your Will that holds assets for your spouse and then transfers them to your children after your spouse's death, ensuring that your assets stay in the family rather than going elsewhere.
Another common error is forgetting about Insurance/IRA designations. Separate beneficiary designation forms control the distribution of retirement accounts, annuities and life insurance after death. It is critical to complete beneficiary forms for these assets if you wish to avoid probate court, and the costs and publicity that goes with the probate process. Assets titled in your name, as opposed to jointly held with rights of survivorship, without designated beneficiaries will be distributed according to the general instructions in your Will, possibly triggering taxes much sooner than otherwise would be the case.
Please feel free to call or email with questions!
A second common mistake is making surprise decisions on who gets what, which can also lead to hurt feelings and family conflicts. Most people do not want spouses, children and other relatives fighting over their assets when they are gone, but that is exactly what can happen if they don't take the time to explain to their heirs what they plan.
Cutting out a spouse is surprisingly common, but unless you have a prenuptial agreement, your spouse is entitled to receive up to one-half of your estate, whether you write it into your will or not. Have your spouse sign a waiver before your death or expect your estate to face claims afterwards.
At the other end of the spectrum are those individuals who are in a second marriage and leave everything to their spouse. The children from the individual's first marriage can end up with nothing after the spouse dies if he/she has remarried in the interim. One solution is to set up a marital trust within your Will that holds assets for your spouse and then transfers them to your children after your spouse's death, ensuring that your assets stay in the family rather than going elsewhere.
Another common error is forgetting about Insurance/IRA designations. Separate beneficiary designation forms control the distribution of retirement accounts, annuities and life insurance after death. It is critical to complete beneficiary forms for these assets if you wish to avoid probate court, and the costs and publicity that goes with the probate process. Assets titled in your name, as opposed to jointly held with rights of survivorship, without designated beneficiaries will be distributed according to the general instructions in your Will, possibly triggering taxes much sooner than otherwise would be the case.
Please feel free to call or email with questions!
Friday, August 5, 2011
Market Update
The market topping process we wrote about Tuesday is now complete. The stock jockeys bounced the market hard on Wednesday in an effort to avoid a close below the March 16th low (1249), which would have put the top in place and brought in more short term selling. Unfortunately the Wednesday bounce was short lived and itchy trading fingers started pushing buttons on Thursday, pounding the market lower. The S&P 500 basically opened at its high and closed at its low on big volume - just about as negative as you can get from a technical stand point. We will likely get an oversold rally starting either late today or more likely early next week as the speculators (which is almost everyone these days) try to jam the market back into its six month trading range (1249-1370). The rally is likely to fail and further downside testing (perhaps all the way to the low 1100s) is likely by the fall. We continue to think the market will likely rally into year end, following this sell off, with the onset of the real bear market not occurring until sometime next spring. Our best-guess scenario is predicated on the Federal Reserve and/or the Administration coming up with yet another ill-conceived, short term program to support the market, delaying, but not preventing, the inevitable bear market that lurks out there in our future.
Our longer term forecast is unchanged - a bear market within the next 12-18 months that takes the S&P 500 down 20%-40% from its 1370 high. The bear market's underlying causes will include the simple fact that S&P 500 fair value is only about 900, making it an expensive investment currently. Additionally, record net profit margins will revert to their long run mean at some point as the economy continues its slide back into recession, resulting in disappointing earnings from the S&P 500's constituents.
Biechele Royce Advisors continues to buy good companies at great prices as we find them, but has been carrying extra cash in client portfolios and favoring more defensive investments in anticipation of the selling we are now experiencing.
Our longer term forecast is unchanged - a bear market within the next 12-18 months that takes the S&P 500 down 20%-40% from its 1370 high. The bear market's underlying causes will include the simple fact that S&P 500 fair value is only about 900, making it an expensive investment currently. Additionally, record net profit margins will revert to their long run mean at some point as the economy continues its slide back into recession, resulting in disappointing earnings from the S&P 500's constituents.
Biechele Royce Advisors continues to buy good companies at great prices as we find them, but has been carrying extra cash in client portfolios and favoring more defensive investments in anticipation of the selling we are now experiencing.
Tuesday, August 2, 2011
Recession and the Bear
Last week was a big down week for equities, with most major averages down around 4%. DJIA lost 4.24%, S&P500 down 3.92%, and NASDAQ fell 3.58%. The S&P 500 was down 2.2% for July. Treasuries rallied for the week, with the 10-yr. yield lower at 2.79%. Some of the economic highlights to go with the weak stock market action were:
Q2 GDP disappoints…Q1 revised lower.
U.S. economy grew by only 1.3% in Q2, and Q1 was revised down to a mere 0.4% growth rate.
(Weakness in consumer spending suggests that higher prices for certain food / energy items have played a role in restraining spending.)
0.1% increase in personal spending was the lowest since Q2 2009 in the midst of the recession.
Budget cuts in state/local government contributed to a 3.4% drop in government spending.
It appears that sub-par growth continues to be the path of the economy for the second half.
GDP growth has now decelerated to a level below the 2% threshold that has been a predictor of recession in the past. Jobs and housing are closely linked and both remain a drag on the economy. New home sales fell in June as potential buyers pulled back from the market amid job uncertainty and tough lending standards. Canceled home transactions in June jumped to 16%, way above the 4% level seen in May and the 9-10% range of the last year. Tight appraisals and tough loan underwriting scrutiny are to blame, according to the media. Most of the activity in the housing market are distressed sales.
Technically, the market has broken the uptrend begun on 7 July 2010 and continues the topping process begun 18 February 2011. A drop below the 16 March low of 1249 would put the top in place and sharply increase the likelihood that the secular bear market is resuming. We continue to think it more likely that a retest of the 1 July 2010 low at 1011 won't occur until sometime next spring but a fall retest is a possibility. Regardless, we continue to maintain a defensive posture in client portfolios given that S&P 500 fair value is around 900 and that the economy is clearly slowing.
Q2 GDP disappoints…Q1 revised lower.
U.S. economy grew by only 1.3% in Q2, and Q1 was revised down to a mere 0.4% growth rate.
(Weakness in consumer spending suggests that higher prices for certain food / energy items have played a role in restraining spending.)
0.1% increase in personal spending was the lowest since Q2 2009 in the midst of the recession.
Budget cuts in state/local government contributed to a 3.4% drop in government spending.
It appears that sub-par growth continues to be the path of the economy for the second half.
GDP growth has now decelerated to a level below the 2% threshold that has been a predictor of recession in the past. Jobs and housing are closely linked and both remain a drag on the economy. New home sales fell in June as potential buyers pulled back from the market amid job uncertainty and tough lending standards. Canceled home transactions in June jumped to 16%, way above the 4% level seen in May and the 9-10% range of the last year. Tight appraisals and tough loan underwriting scrutiny are to blame, according to the media. Most of the activity in the housing market are distressed sales.
Technically, the market has broken the uptrend begun on 7 July 2010 and continues the topping process begun 18 February 2011. A drop below the 16 March low of 1249 would put the top in place and sharply increase the likelihood that the secular bear market is resuming. We continue to think it more likely that a retest of the 1 July 2010 low at 1011 won't occur until sometime next spring but a fall retest is a possibility. Regardless, we continue to maintain a defensive posture in client portfolios given that S&P 500 fair value is around 900 and that the economy is clearly slowing.
Wednesday, June 22, 2011
Laddered Bond Portfolios
I received a call from a Dow Jones newspaper reporter yesterday asking me my thoughts on laddered bond portfolios as a strategy for income in retirement. She was under the impression that I was not in favor of them - possibly from something I'd written in the past (although she wasn't able to quite recall what she'd read and I wasn't able to quite recall what I might have written). Anyway, we had a very pleasant half hour conversation about laddered portfolios, fee-only versus fee-based (brokers) advisors, variable annuities, and properly diversified multi-asset portfolios...among other investment topics.
But I thought I ought to pass on my thoughts on laddered bond portfolios to my readers, since it was the primary reason she called.
I think a laddered bond strategy makes quite a bit of sense for retirees, but only as a part of a properly diversified multi-asset portfolio. I am not in favor of single asset portfolios for anyone, let alone a retiree. Putting your eggs all in one basket is never a good idea, even if it is in the supposedly safe basket of Treasury bonds, which I personally believe carry quite a bit of risk currently. (Bill Gross of Pimco is on the same page by the way as his firm - the largest bond investor in the world - is currently completely out of Treasury bonds according to statements the bond king has made in recent months).
Bonds were known as certificates of confiscation back in the early 1980s, before the great bond bull market kicked off in 1982. Bond investors had lost their shirts over the prior 15 years or so as interest rates had risen steadily along with inflation. Negative real rates eroded bond wealth steadily for better than a decade. However, Paul Volcker's Federal Reserve changed all of that by committing to sound monetary policy designed to bring down inflation and restore the stability of the dollar as a store of value. Bonds have proven a splendid investment ever since... until now.
It is highly likely that inflation will continue to rise and, with it, interest rates over the next decade. We may have another year or two to wait before the trend really gathers steam, but without drastic changes in U.S. monetary and fiscal policy, the odds of a long bond bear market are high. A laddered dollar bond portfolio is not where you want all of your assets in such an environment. Yes bonds will mature yearly and can be reinvested at higher rates, but the bonds in you portfolio will lose value. Any sales necessitated by unexpected cash needs will result in losses. And generating capital losses in bond investing is a cardinal sin. Even more dangerous is the strategy of attempting to "ladder" a bond mutual fund portfolio, given that bond mutual funds have a perpetual duration - duration is a measure of bond price sensitivity to changes in interest rates. The longer the duration the bigger the price moves in a bond, and perpetual is as long as you can get.
Far better to build a properly diversified multi-asset portfolio for our retiree that might include a laddered bond portfolio to go with the high-quality dividend paying blue chip stocks, the dollar diversifying international assets, and the inflation hedging tangible assets (real estate and commodities primarily).
The S&P 500 is rallying short term after moving into oversold territory, but is likely to at least retest the recent low at 1256. It is still too early to tell if the correction is merely the pause that refreshes on the start of a topping process that will ultimately lead to the next downleg in the ongoing secular bear market. We reiterate that fair value for the S&P 500 is in the 900 area and that the economy is now showing clear signs of slowing - a combination that would suggest prudence is the better part of valor at the moment.
But I thought I ought to pass on my thoughts on laddered bond portfolios to my readers, since it was the primary reason she called.
I think a laddered bond strategy makes quite a bit of sense for retirees, but only as a part of a properly diversified multi-asset portfolio. I am not in favor of single asset portfolios for anyone, let alone a retiree. Putting your eggs all in one basket is never a good idea, even if it is in the supposedly safe basket of Treasury bonds, which I personally believe carry quite a bit of risk currently. (Bill Gross of Pimco is on the same page by the way as his firm - the largest bond investor in the world - is currently completely out of Treasury bonds according to statements the bond king has made in recent months).
Bonds were known as certificates of confiscation back in the early 1980s, before the great bond bull market kicked off in 1982. Bond investors had lost their shirts over the prior 15 years or so as interest rates had risen steadily along with inflation. Negative real rates eroded bond wealth steadily for better than a decade. However, Paul Volcker's Federal Reserve changed all of that by committing to sound monetary policy designed to bring down inflation and restore the stability of the dollar as a store of value. Bonds have proven a splendid investment ever since... until now.
It is highly likely that inflation will continue to rise and, with it, interest rates over the next decade. We may have another year or two to wait before the trend really gathers steam, but without drastic changes in U.S. monetary and fiscal policy, the odds of a long bond bear market are high. A laddered dollar bond portfolio is not where you want all of your assets in such an environment. Yes bonds will mature yearly and can be reinvested at higher rates, but the bonds in you portfolio will lose value. Any sales necessitated by unexpected cash needs will result in losses. And generating capital losses in bond investing is a cardinal sin. Even more dangerous is the strategy of attempting to "ladder" a bond mutual fund portfolio, given that bond mutual funds have a perpetual duration - duration is a measure of bond price sensitivity to changes in interest rates. The longer the duration the bigger the price moves in a bond, and perpetual is as long as you can get.
Far better to build a properly diversified multi-asset portfolio for our retiree that might include a laddered bond portfolio to go with the high-quality dividend paying blue chip stocks, the dollar diversifying international assets, and the inflation hedging tangible assets (real estate and commodities primarily).
The S&P 500 is rallying short term after moving into oversold territory, but is likely to at least retest the recent low at 1256. It is still too early to tell if the correction is merely the pause that refreshes on the start of a topping process that will ultimately lead to the next downleg in the ongoing secular bear market. We reiterate that fair value for the S&P 500 is in the 900 area and that the economy is now showing clear signs of slowing - a combination that would suggest prudence is the better part of valor at the moment.
Monday, June 13, 2011
Correction
The market is finally starting a correction that could eventually turn into a full fledged bear market, depending on what policy decisions the administration, the Federal Reserve, the ECB, and the Chinese make in response to a slowing economy in the U.S. and rising inflation overseas. The S&P 500 has lost 7.7% since its 2 May peak of 1370.58 (5.3% of that loss coming in June). The next key support is 1249 - the 16 March low. Selling pressures sufficient to take out the 1249 support level would sharply increase the likely of further significant downside testing. There is strong support for the S&P 500 from 1150 down to 1000 however, making the onset of a full blown bear market unlikely in the next few quarters. Tops take time to form and it is more likely that a bounce off of 1249, or perhaps off of 1220 support (10.9% pullback) will see the S&P 500 rally into year end and finish somewhere near the May 2 high of 1370.
Nevertheless, a renewal of the secular bear market this year can't be ruled out. S&P 500 fair value is in the 900 area, net profit margins are at record levels (and will certainly fall going forward), and the U.S. economy is showing signs of slowing. As well, the Chinese are tightening monetary policy and the ECB is talking about tightening monetary policy - both entities would like to deflect inflation away from their shores.
On the other side of the ledger is the President's desire to win re-election. It is very likely that Obama will take steps to bolster the economy short term (and by extension the stock market) in order to win re-election. No post WWII incumbent has won re-election with unemployment above 7.2%, which means Obama must do something fairly quickly to light a fire under the jobs market if he hopes to serve a second term.
Likewise, Ben Bernanke continues to send signals that QE2 will not be the end of his monetary largess. He apparently remains determined to use every monetary policy tool in his tool box to keep the stock market afloat while the banks continue to repair their shattered balance sheets. Bernanke is likely to trot out another initiative immediately on the heels of QE2's end on 30 June. Our forecast is still for a resumption of the bear market sometime in the next 12 to 18 months, but we continue to believe that we are more likely to feel the Bear's bite in 2012 than 2011.
We continue to look for high-quality dividend paying blue chips to buy. We also continue to invest in shorter duration fixed income investments, given the likelihood of rising interest rates in coming years. Finally we continue to invest in nondollar assets that will provide a hedge against purchasing power loss as the shortsighted policies pursued by politicians (on both sides of the aisle) and the Federal Reserve all but ensure rising inflation over the next decade.
Nevertheless, a renewal of the secular bear market this year can't be ruled out. S&P 500 fair value is in the 900 area, net profit margins are at record levels (and will certainly fall going forward), and the U.S. economy is showing signs of slowing. As well, the Chinese are tightening monetary policy and the ECB is talking about tightening monetary policy - both entities would like to deflect inflation away from their shores.
On the other side of the ledger is the President's desire to win re-election. It is very likely that Obama will take steps to bolster the economy short term (and by extension the stock market) in order to win re-election. No post WWII incumbent has won re-election with unemployment above 7.2%, which means Obama must do something fairly quickly to light a fire under the jobs market if he hopes to serve a second term.
Likewise, Ben Bernanke continues to send signals that QE2 will not be the end of his monetary largess. He apparently remains determined to use every monetary policy tool in his tool box to keep the stock market afloat while the banks continue to repair their shattered balance sheets. Bernanke is likely to trot out another initiative immediately on the heels of QE2's end on 30 June. Our forecast is still for a resumption of the bear market sometime in the next 12 to 18 months, but we continue to believe that we are more likely to feel the Bear's bite in 2012 than 2011.
We continue to look for high-quality dividend paying blue chips to buy. We also continue to invest in shorter duration fixed income investments, given the likelihood of rising interest rates in coming years. Finally we continue to invest in nondollar assets that will provide a hedge against purchasing power loss as the shortsighted policies pursued by politicians (on both sides of the aisle) and the Federal Reserve all but ensure rising inflation over the next decade.
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