China

Ok, so China had some sort of event overnight that seems to have knocked foreign stocks down for the day. The US market started lower and shrugged it off. I have touched on this before. I think a real meltdown in China would have an effect on other markets but it would be more about emotion than fundamental causality. The thing behind the thing (and others have said this too) is that the internal modernization and ascendancy to middle class is going to continue regardless of the stock market and what GDP does. A 50% hit to their market may slow things down I am not saying it won’t but progress will continue. If so then I would expect things that benefit from China would still benefit but they won’t be immune from a correction to be sure. Earlier today on the network I heard a segment with JJ Burns and Marc Pado about investing in China and China’s impact on our markets. They both seemed to agree that retail investors should not own individual stocks. That an investor should not own a stock from some country because they are an individual or retail investor strikes me as balderdash (Jim Rogers favorite word perhaps?). For a given investor a stock may or may not be appropriate but a blanket statement like this seems incomplete. I have touched on this a fair bit in the last few days but the risk taken by owning some stock with a heavy weight in the ETF for that country is does not make you a risk junkie if you own the correct proportion....

China

Ok, so China had some sort of event overnight that seems to have knocked foreign stocks down for the day. The US market started lower and shrugged it off. I have touched on this before. I think a real meltdown in China would have an effect on other markets but it would be more about emotion than fundamental causality. The thing behind the thing (and others have said this too) is that the internal modernization and ascendancy to middle class is going to continue regardless of the stock market and what GDP does. A 50% hit to their market may slow things down I am not saying it won’t but progress will continue. If so then I would expect things that benefit from China would still benefit but they won’t be immune from a correction to be sure. Earlier today on the network I heard a segment with JJ Burns and Marc Pado about investing in China and China’s impact on our markets. They both seemed to agree that retail investors should not own individual stocks. That an investor should not own a stock from some country because they are an individual or retail investor strikes me as balderdash (Jim Rogers favorite word perhaps?). For a given investor a stock may or may not be appropriate but a blanket statement like this seems incomplete. I have touched on this a fair bit in the last few days but the risk taken by owning some stock with a heavy weight in the ETF for that country is does not make you a risk junkie if you own the correct proportion....

International Fixed Income

A reader left a comment asking about international fixed income that you can read here. I am a big believer in foreign diversification for stocks, bonds and cash. Many clients have foreign bonds with a CEF that is mostly Australia and an individual issue from Norway. As time goes on I can see adding individual issues from other countries. These are difficult to access for individuals as the minimum at Schwab is $100,000 per trade. I can allocate to clients as small as I want however. There are several reasons why I believe in doing this. While I think the dollar is generally headed lower, slowly over time there will be periods where it is strong (bonds from other countries is one way to benefit from a weak dollar). The strategy here needs to be one looking at the long term. Also the blending of fill in the blank from different countries tends to reduce volatility. This especially makes sense when you consider that the middle of the US curve is very low by historical standards. I think it makes sense to expect that the curve will normalize at some point and when it does I think intermediate and further out maturities will be higher in yield and shorter maturities will be a touch lower. This normalization, if it happens, means bond prices would go down. As a rule of thumb a 1% increase in rates works out to about an 8% decline in price–of course shorter maturities work differently. Another aspect to this is that I think other countries are better off economically which makes for a compelling...

International Fixed Income

A reader left a comment asking about international fixed income that you can read here. I am a big believer in foreign diversification for stocks, bonds and cash. Many clients have foreign bonds with a CEF that is mostly Australia and an individual issue from Norway. As time goes on I can see adding individual issues from other countries. These are difficult to access for individuals as the minimum at Schwab is $100,000 per trade. I can allocate to clients as small as I want however. There are several reasons why I believe in doing this. While I think the dollar is generally headed lower, slowly over time there will be periods where it is strong (bonds from other countries is one way to benefit from a weak dollar). The strategy here needs to be one looking at the long term. Also the blending of fill in the blank from different countries tends to reduce volatility. This especially makes sense when you consider that the middle of the US curve is very low by historical standards. I think it makes sense to expect that the curve will normalize at some point and when it does I think intermediate and further out maturities will be higher in yield and shorter maturities will be a touch lower. This normalization, if it happens, means bond prices would go down. As a rule of thumb a 1% increase in rates works out to about an 8% decline in price–of course shorter maturities work differently. Another aspect to this is that I think other countries are better off economically which makes for a compelling...