There is much talk about 2008 and many comparisons between then and now. It has been my experience that most of the pundits who shout: “2008!” have little knowledge and even less understanding of what caused the Financial Crisis. Ask them to describe what a SIV, CDO, Synthetic CDO and CDO-squared are, chances are you will get a blank stare in response. That stare is usually indicative of their knowledge of the subject. (4) (5) (6) (7)

Fixed income market pundits often discuss risk premiums (credit spreads) to judge relative value. If risk premiums are narrower than the historic average, credit products, such as corporate and municipal bonds are said to be rich. If wider than the norm, they are said to be cheap. A similar discussion is now occurring in the bond market regarding the spread between the yield of long-dated U.S. Treasuries and the current, and expected rates of inflation. Many pundits claim that the bond market is underpricing inflation. What this ignores is the principal of supply and demand. The organic demand for U.S. Treasuries is such that investors are willing to accept a lower inflation risk premium than they had in the past. It is not so much that the bond market is wrong, but that these fixed income market commentators and strategists are ignoring the context in which this phenomenon is occurring. (5) (6) (7)

Global sovereign interest rates also play a part in UST yields. The Japanese Government Bond Curve has negative yields until the 9-year area. The 10-year Bundesobligation is yielding about 0.30%. How high can the 10-year UST yield trade when it is the most attractive high-quality sovereign benchmark on the planet? Backward looking interest rate and inflation models are failing investors and portfolio managers alike. (2) (5) (6) (7)

Who judges the success or failure of long-term strategies bases on annual performance? Apparently investors and advisors do. Judging the price performance of long-term assets, such as bonds, based on annual price performance is ludicrous. Under Tom Coughlin, the New York Giants made the playoffs five times in eleven seasons. During that same time, the Cincinnati Bengals made the playoffs seven times. However, the Giants won two Super Bowls during that time while the Bengals did not win a single playoff game. Few would argue that the Bengals were a more successful team than the Giants, but based in annual performances, the Bengals would appear to have been the better team. The point is to achieve your long-term goals. Annual performance/volatility is usually just noise, if one is appropriately positioned along suitability lines. (5) (6) (7)