From the Desk of Bob Caldwell
A Lesson To Be Learned
Whipsaws and whiplash. We all know what the term whiplash means when someone gets into a car accident. When we hear the term, we envision a painful neck injury and maybe a neck brace. This term is also often used with the term "whipsaw" when observing the markets. A whipsaw occurs when the market moves erratically in several directions. And if you follow that market, you can get economic whiplash. Now the stock market has not been that erratic as it has steadily moved upward this year with a few days of retrenchment here and there. However, the bond market has been a bit more schizophrenic in its personality this year. For the past few years, the bond market has been a safe haven from volatile markets. The Federal Reserve Board pushed rates down and the struggling economy kept them down.
Anyone who purchased or refinanced a home or bought a car has seen the benefit of low rates in the past few years. And those who put their money into bonds have seen a good steady return for the most part. At the beginning of this year, it appeared that the economy was going to start to roll. Rates then made their first move upward in the past several months. Then came some headlines in Cyprus, the Boston bombing and some weaker economic reports. Rates edged back down to near historic levels. The stronger-than-expected employment report caused rates to move up in short order. That is a lot of movement for a market which still features historically near record lows. On the other hand, it is a lesson to be learned. When rates decide to move upward, there is nothing the Fed can do about it. And we will get no warning.
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"From the Desk of Bob Caldwell" Blog, Copyright 2013 Bob Caldwell