Doubleline January 2014 Monthly Commentary
The beginning of the New Year meant the end to Ben Bernanke at the helm of the Federal Reserve was near. His last policy meeting resulted in a continued tapering of asset purchases, matching the announcement received at the prior meeting for an additional cut of $10 billion in monthly bond purchases. Ben Bernanke stepped away after guiding policy through eight years of turbulence. Taking his place was new Federal Reserve Chairwoman Janet Yellen, who has to navigate the murky waters of weaning the world’s largest economy off of the loose monetary policies that have become the hallmark of the post-crisis landscape.
Treacherously cold weather has largely obfuscated recent economic reports, and large currency swings seen in countries such as Argentina, South Africa, and Turkey further complicate Chairwoman Yellen’s task. Whether the Federal Reserve decides to include the effects these policy changes will have on emerging economies remains to be seen. The term “Fragile Five” has been assigned to such countries which have seen large reverberations due to the recent tapering of purchases. Those countries include Argentina, South Africa, Turkey, Brazil, and Indonesia. Weakness in domestic equity markets during January can also be partially ascribed to the ever impending slowdown in China, an unwind of consensus bullish views on U.S. Equities, and in general a re-evaluation of U.S. growth prospects.
Maybe the most surprising event in January was the outperformance of fixed income markets relative to equities. The 1.5% return for the iShares Barclays Aggregate Bond Fund (NYSEARCA:AGG) represents a clear outperformance compared with the 3.5% total return loss for the S&P 500 (INDEXSP:.INX) Index during the month. Ending the month at 2.64%, the ProShares Ultra 7-10 Year Treasury ETF (NYSEARCA:UST) rate fell 38 basis points (bps) on the back of falling deficits, falling inflation, and – as mentioned – a reversal of what many thought was the “consensus trade” to avoid UST. Real Gross Domestic Product (GDP) growth during the fourth quarter came in at 3.2%, and while slower than third quarter growth of 4.1%, second half growth was the strongest half year of growth in a decade. Unemployment continued its march lower to 6.6% while the broader “underemployment rate” fell 0.4% to 12.7%.
See full PDF Doubleline January 2014 Monthly Commentary