October 3, 2024

Producer Prices Fell in December

Opinion »

What the Polls Can’t Tell Us

Room for Debate asks: By November, can we expect big swings in public opinion? What issues could upend the race?

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I.M.F. Seeks Additional $500 Billion

Opinion »

What the Polls Can’t Tell Us

Room for Debate asks: By November, can we expect big swings in public opinion? What issues could upend the race?

Article source: http://feeds.nytimes.com/click.phdo?i=960b945a29509ce5c45dc9aa1ae990e7

Bucks: Gyrating Markets Are What You Signed Up For

Carl Richards

During the last few weeks, I’ve heard a lot of chatter about volatility. I knew something was going on when I overheard people at the grocery store talking about their investments, saying things like,”This volatility is killing me.”

I used to joke that volatility was a word that people in the investment industry used and the rest of us nodded our heads at in agreement, pretending to know what it meant. Volatility has long been used as a proxy for risk, but in all the conversations I’ve had over the years, no one has admitted to laying awake at night over concern about their volatility.

Volatility is a measure of the variation of the price of an investment over time, but over the years I’ve referred to volatility as the amount something wiggles. Stocks wiggle more than bonds. Bonds (intermediate term bonds) wiggle more than cash. And, of course, cash wiggles the least of all.

So if you believe that risk and return are related, then volatility represents the risk of investing in a diversified basket of stock-based mutual funds and in turn it is the reason we get paid more to own stocks over the long haul than we do sitting in bonds or cash.

In the last few weeks, we’ve lived through a historic seesaw, including a period when the S.P. 500 either rose or fell over 4 percent for each of four consecutive days. While these dramatic days have us all talking, it’s important to realize that volatility and investing go hand in hand. They always have, and chances are they always will.

So if you’ve discovered that you can’t stomach the wild swings, now might be a good time take note of how much you didn’t like it so that when the time is right you can reduce your exposure to the stock market and add more bonds. The entire idea behind including bonds and cash in a longer-term investment portfolio is to smooth out the ride a little. Bonds act as ballast to the portfolio so that the swings aren’t as dramatic.

Please note that I’m not saying you should sell or buy stocks now. That is a entirely different discussion. I am just trying to point out the role volatility plays in an investment plan and one of the ways of dealing with it.

No one really knows if this type of volatility is here to say, but in the end it really doesn’t matter much. After all, volatility has always been part of the deal when you invest in the stock market. If you still believe that stocks will be a better investment over time than bonds, then you will simply have to deal with the volatility.

Article source: http://feeds.nytimes.com/click.phdo?i=8afb2c94edb8db6485e0a4fa5e470436

Economix Blog: Riots, Good Credit and Stocks

FLOYD NORRIS

FLOYD NORRIS

Notions on high and low finance.

After a week of wild swings, stock markets ended with relatively mild moves for the week, proving there was no need to come home from vacation just because there was a little volatility.

Here are the weekly changes for leading indexes in the United States and the largest countries in Europe and Asia, ranked by price change in local currencies:

1. Britain, FTSE 100: +1.4%
2. Spain, IBEX: -0.3%
3. Italy, FTSE/MIB: -0.8%
4. China, CSI 300: -0.8%
5. United States, S.P. 500: -1.7%
6. France, CAC: -2.0%
7. India, Sensex: -2.7%
8. Japan, Nikkei 225: -3.6%
9. Germany, DAX: -3.8%

Permit me a few observations:

1. The only stock market that rose was the one in the country shaken by riots. Could investors be encouraged by the fact there will now be more investment (in rebuilding stores) and more spending (to restock looted inventories)?

2. The worst performer was the country whose credit has been above reproach. Could bad credit be an advantage? Maybe in this era having a good balance sheet simply adds to the risks that a country will be asked to bail out somebody else. By that logic, the United States should be grateful to Standard Poor’s for the downgrade.

3. Worries about impending disaster in recent weeks have focused on Europe and the United States, while ignoring Asia. But Asian markets as a group underperformed. Could this be a signal that the real problems lie where we are not looking? Or could it indicate that having problems is a good thing in the view of investors? Note that stocks in Spain and Italy did better than those in France and Germany.

If much of the above strikes you as ridiculous, keep that in mind the next time you read an article that confidently uses the newest economic or political developments to explain the newest market moves. If there is one thing I have learned in nearly 30 years of trying to analyze markets, it is that the answers are rarely neat and simple, and that sometimes correlations prove absolutely nothing.

Article source: http://feeds.nytimes.com/click.phdo?i=d3ac1e87da4b06239e01c4c2bc45c149