Courtesy of Scott Martindale, Sabrient Systems and Gradient Analytics
I don’t know about you, but I’m getting a lot of auto-response emails from folks in the investment world who are on vacation these days. Yes, the summer doldrums have set in, often leaving junior portfolio managers–without seniority, vacation time, school-age children, or much in the way of discretionary authority–to mind the store. And yet, the specter of global uncertainty remains at the front of every portfolio manager’s mind…even as they bask in the sun in Maui or The Hamptons.
In case you’ve lost track, the shroud of uncertainty comprises major issues like U.S. tax reform, the Supreme Court ruling on Obamacare, the U.S. debt ceiling, the so-called “fiscal cliff” at the end of 2012, the imminent U.S. presidential election, and of course, slowing growth in China and Europe’s never-ending debt crisis. Nothing trivial in this list.
Trading volume was notably lower on Wednesday, and of course next week has the 4th of July holiday smack-dab in the middle of the week, which virtually guarantees that the whole week will be slow and sleepy. Some say the small stock market bounce on Tuesday-Wednesday was due to the promising U.S. economic data, while other chalked it up to short-covering ahead of yet another European Union summit.
The hope among global investors is for a sign of commitment from EU leaders to stimulate growth, create a banking union, debt mutualization (e.g., Eurobonds), and make progress toward a cohesive political structure across the region.
Although Spain’s 10-year bond yield fell hard to below 6.4% last week, this week it has bounced back up to near 7%. But in the U.S., the Fed’s Operation Twist, which was to expire this month, was instead extended, as you know. This program swaps short-term bonds for longer durations, reducing interest rates on mortgages and business loans, i.e., provide cheap credit.
Although not all borrowers have gained access to this cheap credit, some of the diversified REITs have taken advantage of the low borrowing rates to boost their profits and pay high dividends, which has attracted investors, particularly since the U.S. housing market continues to show signs of recovery. Two such REITs that are ultra-high-yielding are Annaly Capital Management (NLY) and Invesco Mortgage Capital (IVR).
Let’s look at the charts. SPY closed Wednesday at 133.17. Now it finds itself back in the middle of its Bollinger Bands,…
