The capital markets and the global economy are caught between the rock and the hard place. Misguided policy choices in Europe and deadlocked budget negotiations in Washington are threatening to crush the meager economic growth in the developed world. The toxic environment is starting to infect emerging markets too. For contrarian investors with a long-term view, the possibilities may be looking up. But earning higher risk premiums than the crowd isn’t going to come easily. Turbulence looks like a safe bet for the near term, and perhaps longer. Everything else is open for debate as the world sorts through the mystery of how we get from here to there without (hopefully) shooting ourselves in the head. The thankless job of discounting the unknown unknowns is now job one. The blunt response is now roiling markets, as you’ll see in the following review of the major asset classes via our usual list of ETF proxies…
US STOCKS • Vanguard Total Market (VTI) • Benchmark: MSCI US Broad Market Index
The bounce didn’t last…
FOREIGN DEVELOPED MARKET STOCKS • Vanguard Europe Pacific (VEA) • Benchmark: MSCI EAFE
Foreign developed stocks are sinking even faster…
EMERGING MARKET STOCKS • Vanguard Emerging Markets (VWO) • Benchmark: MSCI Emerging Market
Emerging market equities are no longer immune to the developed world’s ills…
US BONDS • Vanguard Total Bond Market (BND) • Benchmark: Barclays US Aggregate
The safe-haven trade is stuck in neutral…
INFLATION-INDEXED US TREASURIES • iShares Barclays TIPS Bond (TIP) • Benchmark: Barclays US TIPS
Inflation-indexed Treasuries are treading water too…
HIGH YIELD BONDS • SPDR Barclays High Yield Bond (JNK) • Benchmark: Barclays High Yield Very Liquid
Gravity takes a toll on junk…
COMMODITIES • iPath Dow Jones-UBS Commodity (DJP) • Benchmark: DJ-UBS Commodity
Commodities are trending lower too…
REAL ESTATE INVESTMENT TRUSTS • Vanguard REIT (VNQ) • Benchmark: MSCI US REIT
REITs are no longer a port in a storm …
FOREIGN DEVELOPED MARKET GOVERNMENT BONDS • SPDR Barclays Int’l Treasury (BWX) •
Benchmark: Barclays Global Treasury ex-US Capped
The euro crisis has knocked the stuffing out of foreign developed market government bonds…
EMERGING MARKET GOVERNMENT BONDS • Van Eck Market Vectors Emg Mkt Local Currency Bond (EMLC) •
Benchmark: J.P. Morgan GBI-EMG Core
Emerging market bonds are now suffering as well…
FOREIGN GOVERNMENT INFLATION-LINKED BONDS • SPDR DB International Inflation-Protected Bond (WIP) •
Benchmark: DB Global Government ex-US Inflation-Linked Bond Capped
Foreign inflation-indexed government bonds are retreating…
FOREIGN CORPORATE BONDS • PowerShares International Corporate Bond (PICB) •
Benchmark: S&P International Corporate Bond
And there’s no safety in foreign corporate bonds either…
Charts courtesy of StockCharts.com