The prospect of interest rates remaining low for longer has become clearer in the first 100 days of Janet Yellen’s leadership at the Federal Reserve. At the same time the threat of new asset bubbles forming may have become more pronounced. These are views expressed by faculty at the Wharton Business School. While tapering of the Fed’s large scale asset purchase program has continued under Yellen’s watch, asset price volatility has remained in a narrow band—and low volatility can be seen as a contrarian indicator—a sign to be cautious, according to the Financial Times. Turning to another subject—aging parents—a conversation we have had with several people lately—the AICPA points to a number of steps to help children face this difficult challenge.
How Fed policy will affect your investments. Janet Yellen has been head of the Federal Reserve for about 100 days, long enough to put her imprint on it. The Federal Reserve is not ready to phase out its stimulus policy. Interest rates are expected to remain low at least until mid-2015, and maybe until 2016. With “more of a focus on full employment and less on inflation, the tension between protecting against the threat of new asset bubbles and ensuring the economy finally reaches escape velocity will only become more pronounced.”
Volatility vanishes in Fed taper. Asset prices have traded in a limited range for months. The yield on the 10-year Treasury bond has moved within a band that is the narrowest for the longest time since 1978. Lots of other assets have been stuck in a range. The S&P 500 since February has been in the narrowest channel for the longest since February 2007. Many contrarian investors fear low volatility is a sign of market complacency. “Usually low volatility is absolutely definitely a ‘be cautious’ signal…low volatility is definitely a sign to be worried, but it’s less good at market timing…the problem is that volatility has proved capable of staying low for extended periods, particularly in equities.” Financial Times (tiered subscription model)
Caring for your aging parents. Today’s generation of Americans are living longer than ever before. Moreover, geographic mobility has left family scattered. Caring for aging parents is something you hope you can handle when the time comes, but it’s the last thing you want to think about. Whether it’s now or sometime in the future, there are a few steps you can take to prepare for the eventuality.
And in case you missed it, click here to read last week’s blog post which offers some perspective for the new graduate.
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J. Mark Nickell & Co.
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