Thoughts {07.07.16}

 Rest in Peace Abner Mikva.  I had a client who was once a law partner with him and I had several opportunities to meet him.  He was a gentleman of the first order.

Volatility continues unabated with stocks experiencing over a 1% swing to the downside only to reverse 1.3% and closing higher on the day.  Probability suggests we may see more of this in the weeks ahead.

In the "Things Are Getting Better" Department,  go read "US claims for jobless aid fall, sign of employer resilience".   From the article:  "Unemployment claims are a proxy for layoffs. The 70-week streak of claims staying below 300,000 is the longest since 1973. It's evidence that employers view their business prospects as being strong enough to keep workers on the job, even as Britain's vote to depart the European Union has further compounded the volatility seen in the financial markets this year."

Now on to the power of dividends.  The US 10 year bond currently yields 1.40%.  Think about that for a second.  When you invest at that level you are saying that you have so little confidence in the future of the US economy that you are willing to accept a rate of return on your money that will likely not keep pace with inflation and could be a significantly less  based on your tax bracket if held in a taxable account.  All of that for the certainty of getting your principal back in ten years.  The S&P 500 ETF, SPY,  should see some growth over that period if history stays on the market's side.   SPY also pays a dividend currently in excess of 2%.  That dividend amount is likely to grow along with the economy over time as companies in the index raise their dividend payouts.  Of course there is market risk in owning SPY but there is a risk to bond prices as well if interest rates ever rise and holders of the bonds need to sell before their due date.  I recognize the risk to falling prices and making a decision about owning stocks versus bonds depends on a person's individual risk/reward parameters.  Still if I had to bet on one of those horses and had a 10 year time horizon I'd pick the SPY hands down.  Even if we had another lost decade where stocks basically went nowhere then I'd still have the dividend.  

Back Tuesday.

*Long ETFs related to the S&P 500 in client and personal accounts although positions can change at any time.