Granite Group Advisors

Over the last few years both equities and fixed income have done well. The returns over the last 3 years for equities averaged 10.9% and fixed income at 6.2%, ending on 12/31/12.  Historically, fixed income and equities do not usually move in the same direction.  Equity markets are moving to new highs and are usually a good predictor of the future, but bond prices should be falling and yields should be moving higher. 

So why are the equity and fixed income markets moving in tandem? The Federal Reserve has kept yields artificially low by buying trillions of dollars of debt.  If the economy keeps improving, the rubber will meet the road eventually and fixed income yields will probably rise. We do not know when, but certain instruments, like treasuries, would not be a good place to park your money for the foreseeable future. A potential substitute for certain fixed income investments would be an “absolute return” hedge fund of funds. As for equities, the old saying of “Don’t fight the Fed” has never been more accurate. Equities should continue to do Ok , but one should be mindful of the increasing US debt which will eventually affect our ability to grow.

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The Fed’s April Fools

On Friday the government presented another anemic job report for the month of May.  The total number of people added to the job rolls was 69,000 but the expectation was for 150,000 jobs to be added.  Additionally, April’s numbers were revised downward from the original 115,000 jobs to 77,000 jobs and May’s unemployment rate ticked back up to 8.2%.  This was obviously not good news and the global equity markets (with some added problems from China) sold off fast and hard.   Our take is that job growth will continue to be slow for the foreseeable future with so much uncertainty plaguing the business environment.  Those uncertainties include healthcare reform, Dodd Frank regulatory changes, the tax situation that will happen at the end of this year, our enormous debt problem or the upcoming election.  With no clear path to solving these issues, we believe employers will continue to be very cautious in adding employees in the future.    

On Friday the g…