Total Returns %

1 Week 1 Month 3 Month 1 Yr Avg 3 Yr Avg 5 Yr Avg

YTD

Dow Jones

0.32 0.79 9.83 12.66 -3.19 3.89

12.35

NASDAQ

1.78

2.28

17.62

20.39

-1.01

3.17

16.23

S&P 500

1.32 1.98 12.38 14.81 -4.32 1.83

13.39

Russell 2000

2.72

5.80

22.41

32.12

0.84

3.82

25.61

MSCI All Country World

0.56 0.02 10.27 9.71 -8.01 1.03

8.18

Source: Morningstar, Inc.  Data through 12-10-10

This past week saw the S&P 500 and Russell 2000 rise to two year highs, while the Nasdaq climbed to its highest level in almost three years.  However, bonds are losing money quickly as the tax cuts come closer to a reality, and global investors are realizing there is actually risk in bonds.  Oil rose to a 26-month high of about $90/barrel, and inflationary fears are starting to show.

Since QE 2 was announced by the Fed, US bonds as a whole (whether corporate or government) have been under pressure.  It appears that the market is finally tuning into a few facts.  The facts being that inflation is already here, rates are going to have to rise, and bonds hold more risk than usual.  Typically, bonds are held in a portfolio to limit risk and volatility in a portfolio.  In the current environment, bonds are not offering the risk/return reward that typically exists.  The impetus to my critical eye on bonds is the unexpected reception of QE 2.  In the previous runs of quantitative easing, the market reaction was quite different than.  This time around, reality appears to have finally set in.  When conditions change like they have, investors must be nimble to cut losses.

To manage long-term, downside risk in portfolios, my investment strategy seeks to limit steep losses.  In the last few months (since QE2), I am seeing an undesirable trend in the bond markets – that trend being lower lows and lower highs which is indicative of a breakdown.  Most of the pressure on bonds is a result of government policies and currency maneuvers such as money creation, bailouts, and devalued currencies.  Bonds have also started to drop below their 200-day EMAs, which is a sell signal in my opinion.  Because of this, I have repositioned my clients’ portfolios to address the real risks in the marketplace – failing governments, inflation, rising rates, currency wars, etc.

Would you like an analysis of your current investment portfolio?  Call me to schedule your free consultation- 913.693.7918.

John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals.  For more information, visit https://www.chladekwealth.com.

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