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In his first speech as Federal Reserve Chairman, Ben Bernanke choose to focus on the “yield curve”, specifically, the persistant stubbornness of the long-end of the yield curve to remain low. This is not a particularly curious choice, as it has been well established that the flat/inverted yield curve has been very troublesome to the Federal Reserve. On 1/31/05 I made a post titled “Greenspan’s ‘Conundrum’”. In the post I state why the yield curve is flat and why it will remain flat for some time. Rather than regurgitating old data, click on this link to read the post.

Bernanke gave three possible reasons why the yield curve has been so darn unruly.
1) The investing public is confident in the Fed’s ability to keep inflation in check. (Hah!)
2) The propensity of investors, specifically Pension funds, to invest in bonds in spite of their incredibly low yields. (He said the first part of this statement, I attached the second.)
3) The Global Savings Glut.

My previous post deals with Reason #3, which is the only legitimate reason among the three. Feel free to check it out.

By proceeding, I acknowledge that I have read and understood the Disclaimer and Copyright Statements .

Is the consummate perma-bull turning bearish?

Investing is a tricky business. You have to be careful that you don’t get tunnel vision and “only see what you want to see”. This phenomenon destroys your objectively and can be devastating to someone in my business.

Allow me to provide an anology. Whenever you buy a new car, you immediately start noticing a proliferation of people driving your exact model of vehicle. It’s like everyone went out yesterday and bought your car.

So it is with Investment Management. You decide on a strategy and you start noticing all the “support” for your theory. Many advisors only pay attention to what “jives” with his or her own belief structure and dismiss everything else as balderdash. (I think the same goes for Religion, Politics and Fantasy Football – darn Daunte Culpepper!)

The cure (or at least an antidote) for me is to purposely seek out research that doesn’t coincide with my strategy and determine its merits. However, this occasionally backfires and your views are actually validated. Read the rest of this entry »