On August 15, 1971 something very interesting happened in the world of currency – the United States, under President Richard Nixon, removed the dollar from the gold peg. Foreign traders were able to redeem their dollars for gold at a rate of $35 per ounce. Nixon dropped the gold peg in the face of rising inflation and in response to other nations also leaving the gold standard set up in 1944 at the Bretton Woods meeting in New Hampshire. The event, known as the Nixon Shock, instantly devalued the debt and left the dollar as a fiat currency – with nothing backing it up. However, the dollar also found itself in a unique position as the reserve currency which other nations used to back up their own currency.
Here at DQYDJ, we retrieved Standard & Poor’s AAA ‘Domestic Ratings’ for sovereign debt on the morning of 8/11/2011. Here’s the list of ‘AAA’ rated sovereign debt issuers you have already seen at our site: Australia, Austria, Canada, Denmark, Finland, France, Germany, Guernsey, Hong Kong, Isle of Man, Liechtenstein, Luxembourg, Netherlands, New Zealand, Norway, Singapore, Sweden, Switzerland, and the United Kingdom. We told you the other day that the only thing that really matters is the yield – the price at which a sovereign can issue debt. Let’s dig into that further!
My friend sent me an article the other day which really summarized my thoughts succinctly – he sent me this piece from Evan Newmark writing at the Wall Street Journal. If you haven’t noticed the crazy action in the stock market in recent weeks and days, let me be the bearer of bad news: the major US indicators are down from their yearly peaks. You’ve probably lost some money on paper, even. Between oil in the Gulf, the Greece Drama, and even North Korea, there is a lot to be worried about. Here’s the thing – these are all known unknowns, and generally priced into the stock market already.
One of the more interesting risks you’ll face in investing in stocks (or bonds, or any security of a single company for that matter) is headline risk. Headline risk, as you may know, is the effect that news can have on a company (or sector, etc.). Often times, negative news which is only loosely related to a company can hurt it negatively. Of recent note: Tiger Woods’s “transgressions” on the companies that pay him to sponsor their products.
What should you make about the Mark Hulbert article claiming that top market timing newsletters are bullish heading into the new year? After a 27.76% increase in the value of the S&P 500 (not counting dividends) in 2009, how much further does the stock market yet have to run? And what does a bullish consensus among market timers mean, exactly?
Yesterday saw a 1.45% rise in the value of the S&P 500 Index and a 1.33% rise in the Dow. The closely followed indexes have been strong in November, rising 5.53% and 5.09% respectively. However, they are being boosted by a weird trend – the outperformance of large cap stocks.
Or is it? The Dow Jones Industrial Average increased 2.03% yesterday, on the surface a nice gain for the index. Rises such as that give confidence to investors that the worst is over and it’s time to work back into stocks. Let me briefly present the other side of that argument.