Saturday, March 03, 2007

Yield Monkey's huddle for protection

So this week has not been fun for us "yield monkey's". Markets started out weak and ended pretty much the same way. For anyone who has watched CNBC or any other financial news show there are very compelling arguments on both sides of the fence. Some are saying that this is just a correction and others are saying that this is a early sign that a recession is on the horizon. Well I try to break things down to the basics. For most Americans (in my opinion)their 401k and their homes are the majority of their savings. I have done zero research on this and base this opinion on what I hear and read in the news media. I tend to believe this. As such in this type of market where housing prices have stalled (at best!) and stocks begin to take a tumble the average American consumer will tighten up a bit. Does this spell recession, well maybe, but almost certainly a slowdown (soft landing?). Think about yourself, when you hear about the stock market making another new high do you enjoy looking up the balance in your employer's 401k plan? How about this week how many of you looked at it?

Look at the chart above. It is the DJIA for the past year. As you can see it has been a slow steady grind higher. No real correction's along the way. This certainly does not comfort me a whole lot to see a correction of this magnitude in a week, but pull backs are normal and healthy. Again I am not telling you the everything will be OK. Past experience indicates that the long term investor will make out fine after the dust will settle. It is up to the individual to decide their own risk parameter. This is something I call the sleep factor. All the books, and talking heads can give you all the advise they want on what percentage is right for your age group. Ultimately you need to decide for yourself what you are comfortable with. I always try to establish an escape plan if my world falls apart. Hang in there. It is always darkest before the dawn, but try to remember how you feel this week. Again I revert back to myself. When stocks rally there are times that I feel under invested. At times like this I realise that I just may not be.

Good Luck and Good Forex Trading.




Anonymous Caravaggio said...

It was a real tough week for yield chasers, and those monkeys look pretty scared in the picture!

I know it's not much of a consolation but chasing yield does seem to pan out over the longer-term. The main thing here seems to be not to have so much risk on these positions that they can't swing around a bit. Morgan Stanley aptly describes traders who buy the high yielders for capital appreciation as 'psuedo carry traders' because are really taking a punt on currency appreciation versus looking to make most of their gains from the yield pick up.

Anyway, I hope it pans out well amigo.

8:57 PM  

Post a Comment

Subscribe to Post Comments [Atom]

<< Home