Those following the news will have noticed that recently in the US two banks have gone into a government controlled wind down, Silicon Valley Bank and a rival, Signature Bank. In particular, Silicon Valley Bank was one of the top 20 largest US banks.

The Silicon Valley Bank was affected in part by holding bonds that had lost value as the US Federal Reserve increased interest rates. When interest rates go up unexpectedly, the value of bonds fall. The longer the term of the bond, the larger the fall in price. Silicon Valley Bank held very long-term bonds at low interest rates. On Wednesday 8 March, the bank sold their bonds at a significant loss and announced a plan to raise additional capital. However, deposit holders, which included many venture capital firms, became alarmed and sought to simultaneously withdraw their funds which led to the bank collapsing.

About a year ago, Russia invaded Ukraine, an appalling act rightly condemned by the world. In the immediate aftermath, experts weighed the economic impacts, with many projecting sharply higher commodity prices. The prediction made sense: A Russian oil embargo would crimp supply, sending prices higher, or so the thinking held.

I did an interview with Janet Alvarez for The Business Briefing on SiriusXM last week and she asked me for something I’m thinking about that not a lot of investors are talking about at the moment.

It’s kind of hard to find something no one is talking about because so many people are talking all the time now what with 24-hour financial news channels, a plethora of financial media companies, blogs, Substacks, newsletters, social media and so forth.

Investment opportunities exist all around the globe, but the randomness of global stock returns makes it exceedingly difficult to figure out which markets are likely to be outperformers. How should investors deal with this kind of uncertainty?

Recent value returns paint a very different picture from returns just a few years ago. In a webcast, Co-CEO and CIO Gerard O'Reilly puts value's recent performance in context and underscores the importance of investor discipline.

The investor narrative has changed over the last couple of weeks. It went from everyone thinking a recession was a fait accompli to maaaaybe we can actually escape its grip.

Inflation is coming down. Wage growth is decelerating. Activity is returning to the housing market. And the labor market is still incredibly strong. Put all these together and it sounds like the odds of a soft landing are increasing. Both James Bullard and Larry Summers came out this week saying as much.

Each year Aswath Damodaran at NYU kindly updates the annual returns for stocks (S&P 500), bonds (10 year Treasuries) and cash (3-month T-bills) going back to 1928.

I love this data because stocks, bonds and cash are the building blocks of asset allocation.

We hope you had an enjoyable time over the Christmas and New Year period.

It is our pleasure to enclose our Summer Update covering the reporting period from October to December 2022.

A reader asks:

People are saying that the bond market is screaming recession. Has the bond market ever been wrong? Any notable examples and why was it wrong?

The bond market is known for being much smarter than the stock market but we don’t have to go back very far to find a time when it was wrong.

Two years since the pandemic shock helped drive global share markets down 30-40% in the space of weeks, volatility is back. This time, however, it’s war, inflation, and recession fears that are dominating headlines, and not even bonds are immune. It’s a worrying time for investors, to be sure. But just as in every crisis, discipline is the key.

What are people paying for when they seek out a financial planner? Where are the value-adding benefits in this relationship? And what are the key roles of a financial planner? The real answers to those questions may surprise you.

Typically, financial planners highlight among their services advice on asset allocation, retirement planning, cash flow analysis, insurance, wealth protection, estate planning and so on.

Dimensional is excited to congratulate Douglas W. Diamond on being awarded the 2022 Nobel Prize in Economic Sciences. Professor Diamond, who is lead Independent Director of the boards of the firm’s US Mutual Funds and ETFs, received the award on October 10 for his research on banks and financial crises.

Doomscrolling can be a normal reaction to living through uncertain times. It’s natural to want to understand dramatic events unfolding around you and to seek out information when you’re afraid. But becoming absorbed in bad news for too long can be detrimental.

A newly published study has found that people with high levels of problematic news consumption are also more likely to have worse mental and physical health. So what can you do about it?

The U.S. inflation rate remains stubbornly high, clocking in at 8.3% for this week’s latest reading.

Many people think this gives the Fed even more ammunition to continue raising short-term interest rates from their current levels of around 2.5%. Rates could get as high as 4-5% before all is said and done.

Why do we stay when a fund manager underperform?  According to the SPIVA scorecard produced by the S&P Dow Jones Indices, over the last 15 years almost 84% of actively managed Australian equity general funds underperformed the S&P/ASX 200.

Furthermore, the S&P persistence index Australian persistence scorecard has shown that any success can be short lived. Only a minority of Australian high performing funds persisted in outperforming their respective benchmarks or consistently stayed in their respective top quartiles for three or five consecutive years.

Human beings understand the world through story-telling. The organising narrative structure of a beginning, a middle and an end helps us make sense of complexity. But in the world of investment, our need for tidy narratives can steer us in the wrong direction.

The human predilection to see events as stories, where causes and effects are neatly laid out, is the underlying imperative for almost all news media, in which journalists are required to force often messy and unrelated events into emotionally satisfying narratives.

Even during periods of rising interest rates, they can still help control risk.

Bonds are suddenly the asset class everyone loves to hate. In response to the resurgent inflation that started in late 2020, the Fed has hiked interest rates four times so far in 2022, raising rates by a total of 225 basis points. In response, bonds have suffered some of their worst losses in decades. In the first six months of 2022, for example, the Bloomberg U.S. Aggregate Bond Index dropped 10.35%—its worst showing in more than four decades.

As I’ve gotten older the part of pop culture where I’ve fallen behind the most is music.

There aren’t many new artists I like so I mostly end up listening to older music.

There could be a get-off-my-lawn nostalgia thing going on here but the data shows I’m not alone.

When I was growing up, our local newspaper, the Kansas City Star, was full of news and had one page for opinion. After decades of cable news and nonstop digital postings, I see more opinions these days than news. That’s not a bad thing. But when it comes to investing, it’s crucial to remember the difference between news and opinion, and how they are sometimes used to forecast the future.

Nasty market conditions cause our savings to fall in value and make us re-visit our lifestyle choices. Should you take less income this year? Should you delay retirement? Should you stop investing? I don’t believe so.

The slowish motion sharemarket crash since the start of 2022 took another hit last week with US inflation coming in at 8.6% annually to May. Shares groaned and slid again. It’s the worst price rise in 40 years (since 1981). Americans have never experienced the Kiwi inflation pin-ball machine of the 1980s where our annual prices pinged around between 6% and 17%.