About the Author

I am an investment professional with 26 years' experience in investment research and portfolio management. More than 1 200 of my articles on investment-related topics have been published in various regular newspaper, journal and Internet columns (including my blog, Investment Postcards from Cape Town: www.investmentpostcards.com). I have also published a book, Financial Basics: Investment. I am Chairman and principal shareholder of South African-based Plexus Asset Management, which I founded in 1995. The group conducts investment management, investment consulting, private equity and real estate activities in South Africa and other African countries. I am 53 years old and live with my wife, television producer and presenter Isabel Verwey, and two children in Cape Town, South Africa. My leisure activities include long-distance running, traveling, reading, motor-cycling and scripophily.

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Barron’s Confidence Index points to bottoming of equities

July 3rd, 2009

As often stated in my weekly “Words from the Wise” reviews, a confidence indicator worth monitoring is the Barron’s Confidence Index. This Index is calculated by dividing the average yield on high-grade bonds by the average yield on intermediate-grade bonds. The discrepancy between the yields is indicative of investor confidence. There has been a solid improvement in the ratio since its all-time low in December, showing that bond investors are growing more confident and have started opting for more speculative bonds over high-grade bonds.

barrons-pic-1

Source: Plexus Asset Management (based on data from I-Net Bridge)

Not surprisingly, a strong historical relationship exists between the Barron’s Confidence Index and the S&P 500’s 12-month rate of change.

barrons-pic-2

Source: Plexus Asset Management (based on data from I-Net Bridge)

The improvement in the Barron’s indicator augurs well for the outlook for equities – specifically for the return of confidence – and provides further evidence that US stock markets are in all likelihood mapping out a base development formation. However, in the short term I still maintain it is quite likely that markets could consolidate further and possibly retrace more of the prior gains.

View original at: Investment Postcards from Cape Town

More on this topic (What's this?)
Bogle Still Believes In Buy And Hold (Dividends Value, 6/16/09)
Jeremy Siegel: 2010 Good For Stocks, Bad For Bonds (market folly, 2/1/10)
TIM BOND: EQUITY INVESTORS ARE DANCING ON THE EDGE OF THE VOLCANO (THE PRAGMATIC CAPITALIST, 2/10/10)
The Impact Of Rising Interest Rates On Stocks And Bonds (Disciplined Approach to Investing, 2/26/10)
Read more on Bond Investing, Asset Management, Plexus at Wikinvest


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