A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 24, NO. 8
Long, Slow Grind
I TALKED ABOUT THIS A BIT LAST MONTH,
but it bears repeating: The economy is in
a long, slow grind towards recovery/expansion, and so in my mind, the stock market may
be in a long, slow grind higher as well.
Despite a 2.0% loss this month,
Total Stock Market
is up 4.8% for the year.
Total
Bond Market
has returned 3.6%, and
Total International Stock
is up 4.1%. In other
words, everything’s up in 2014, for the moment.
Lately, though, I’ve heard plenty of arguments that the stock market bull is fading, the
economy is late in “the cycle,” and returns are destined to suffer—soon. Well, much of
that is simply opinion, but the comments about the economic and market cycle warranted
a further look, so Jeff and I did a little digging.
First off, when strategists talk about economic and market cycles, they are typically
referring to the common wisdom that the stocks of companies in particular industries or
segments of the market perform best when the economy is coming out of a recession;
others do well when we are in mid-recovery; still others are the leaders when the econ-
omy is slowing; and a different group does well when we are in recession. For example,
you’ve probably heard of “defensive” industries or stocks as the ones you want to own
when the market or the economy is heading into the abyss.
That’s all fine and well, except for a few inconvenient truths. First, how do you know
when you are mid-cycle as opposed to late in the cycle? Usually, you won’t until after
the fact—way after the fact. Second, while it may sound like it’s a given that a sector
considered to be defensive, like health care, does best in the early portions of a bear
The Independent Adviser for Vanguard Investors and FFSA are completely independent of The Vanguard Group, Inc.
RISING RATES
Does a Fed Rate Hike Guarantee Losses?
AS QE III,
or the Fed’s third round of quantitative easing, comes to an end, investors are
increasingly concerned about the Federal Reserve’s next move: A hike, or several, in the
benchmark federal funds rate. When the Fed starts to raise interest rates—so the story
goes—well, then the game is up not only for bonds, but stocks, too!
Hold on, though. Investors shouldn’t be so quick to jump to that conclusion.
Unless economic conditions change dramatically in the next few weeks, the Fed’s
bond buying program is on course to end in October. Then, assuming the economy con-
tinues to expand, at some point the Fed will raise interest rates. We’ve all known that
the fed funds rate wouldn’t, and couldn’t, stay at zero forever. It’s always been a ques-
tion of when—not
if
—the Fed would raise rates. Once it begins, the next question will
be, how far will they go?
DOW JONES INDUSTRIALS
July Close:
16563.30
STANDARD & POOR’S 500
July Close:
1930.67
3500
3750
4000
4250
4500
J JMAM F JD NOS A
NASDAQ COMPOSITE
July Close:
4369.77
0.00%
0.02%
0.04%
0.06%
0.08%
J JMAM F JD NOS A
3-MO.TREASURY BILLYIELD
July Close:
0.02%
2.0%
2.3%
2.6%
2.9%
3.2%
J JMAM F JDNOS A
10-YR.TREASURY NOTE YIELD
July Close:
2.56%
14000
14900
15800
16700
17600
J JMAM F JD NOS A
1600
1700
1800
1900
2000
J JMAM F JD NOS A
AVERAGEVANGUARD INVESTOR*
July:
-1.3%
YTD:
4.6%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
J JMAMF JDNOSA
*See the footnotes on page 2.
Does a Fed Rate Hike Guarantee Losses?....................... 1
Model Portfolios................................................................ 2
Counting the Costs........................................................... 6
Performance Review.................................................... 8-11
Is the Henhouse Unguarded?......................................... 12
Active Management Wins, So Far.................................. 14
Vanguard Costs Under Siege in Lawsuit........................ 15
Dan’s Do-It-Now Action Recommendations.................... 16
PIN
4258*
*SEE PAGE 16
AUGUST 2014
SEE
GRIND
PAGE 3
>
S P E C I A L E X P A N D E D 1 6 - P A G E I S S U E
>
SEE
RATES
PAGE 4
