Ian's Desk 3.0

Hold On To Your Treasury Securities, Money Market Funds Should Shrug Off U.S. Downgrade

When Standard & Poor’s downgraded the U.S. government’s credit rating from AAA to AA+, the $2.5 trillion money market fund industry shuddered in sympathy. Many investors who keep substantial assets in money markets worried about whether their cash was safe.

Not a single fund was forced by its investment policy to dump U.S. treasury holdings, a move that might have put their net asset values under unusual pressure. S&P and the other major credit agencies treat money markets and other relatively short-term obligations separately from debt that takes more than a year to mature. In this case, only the U.S. long-term rating was cut.

As far as money markets are concerned, short-term Treasury debt remains within their top-rated tier. Only a downgrade to A+ on the long-term S&P scale would cause short-term Treasuries to fall out of most high-quality money market portfolios. And for now, at least, even the S&P’s worst-case scenario has the long–term U.S. rating dropping just one more step, to AA (still two notches above A+), during the next two years.

Whether that ever happens or not, the U.S. treasury still carries what money market fund managers consider “minimal” credit risk, which means they can hang on to their Treasury securities.

And so far, most large and small investors are holding on as well.

Copyright 2011 Ian Hurwitz "Hold On To Your Treasury Securities, Money Market Funds Should Shrug Off U.S. Downgrade"

Focus on the Bigger Picture – Economic Indicators Signal Rebound

Don’t start selling your hard-won investments in a panic. The U.S. economy is recovering slowly but surely.

Fear and anxiety, rather than any real deterioration in the economy, is driving market volatility. Investors have overreacted to the downgrade in the U.S.credit rating, ongoing U.S. fiscal problems, and some weak economic data.

Look at the economic indicators-including payrolls, unemployment claims, auto sales, the money supply, retail sales, housing starts, mortgage rates, housing affordability, and oil prices-all are on the upswing.

In addition, corporate revenues soared 13.2% in the second quarter, and economic growth is continuing in emerging markets such as China, Asia, Latin America, and the Middle East. That is fueling strong U.S. corporate earnings. Moreover, the Index of Leading Economic Indicators turned upward at the end of June and points to slowly expanding economic activity.

Take this opportunity to rebalance your portfolio by purchasing assets at reduced prices. It’s an opportune time to consider selling fixed-income assets and buying stocks that have slumped, as long as doing that fits your individual goals,  time horizon, and the level of risk you are comfortable with.

The recovery will take time, but it’s under way. So, don’t sell in a panic, and don’t just ride out the hysteria. Adjust your portfolio to take advantage of market turmoil by keeping focused on the bigger picture

Copyright Ian Hurwitz 2011 “Focus on the Bigger Picture – Economic Indicators Signal Rebound“

Ian’s Investment Philosophy (really Harry Markowitz‘)

Putting money in a savings account means losing money on the long term. Investing money entails risk. What to do?

Harry Markowitz won a nobel prize for his Modern Portfolio Theory, developed in the 1950′s. Shorthand – don’t just speculate, assess risk.  I have studied under Mr. Markowitz. I wrote a book in the 90′s and base my investments on this long term strategy. It still works today. In my opinion it is the only thing to do.

Excerpt from my book:

What are Modern Portfolio Theory’s Advantages?

What Modern Portfolio Theory does is provide a means of accomplishing three extremely important objectives for your personal investment portfolio:

• You can pick the level of risk you are comfortable with. You pick investments that let you sleep at night.
• You can ignore day-to-day and even year-to year fluctuations in the financial markets. This is a long term strategy, and over the long term values have always risen-with remarkable consistency, as we’ll show you later in the book.
• You can count on receiving, with 99% probability, the highest possible returns for the level of risk you are comfortable with.

Sound good to you?

(more to come in the future …)

Copyright 2011 Ian Hurwitz “Ian’s Investment Philosophy (really Harry Markowitz’)“