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Time to Get Rich on Ukrainian Bonds?

It’s Friday. And you ain’t got nothing to do. So let’s get high on pictorial enlightenment.

If you’re a newbie, don’t worry. This kind of “high” isn’t illegal.

Each Friday, I usher in a few carefully selected graphics to convey some important economic and investing insights.

This week, I’m dishing on 1) wicked risky yields of 48%, 2) our penchant for terrible timing, and 3) the sobering truth about the labor market and what it means for the economy.

Here goes…

Credit Markets in Crisis

In a stunning case of déjà vu (think Ireland, Greece and Portugal), credit markets are imploding in Ukraine.

The country is sitting on $10 billion in foreign-currency debt that matures this year, with the peak coming in May, June and August.

And go figure, as military tensions spiked with Russia, so did yields. In a big way.

In a matter of days, yields on six-month Ukrainian bonds more than doubled to 48%, as every sane investor hightailed it for the exits.

Talk About High Yields!: Yield on Six-Month Ukrainian Government Bonds
“This is what it looks like when the market completely loses faith in a country’s finances,” says Business Insider’s Matthew Boesler.

I’ll say!

The upshot? Investors with insanely high risk tolerances could earn the highest yields on the planet if Ukraine doesn’t go belly up. Right now, it’s probably a safer bet than Bitcoin. Just saying.

Are Mom and Pop Missing Out?

Repeat after me, “My name is [insert your name here], and I’m terrible at timing the market.”

It’s time to face the truth, because denial isn’t an option anymore…

Consider: Since March 2009, stocks have been in full-on rally mode – yet, all the while, everyday investors have been yanking billions out of U.S. stock mutual funds. Only recently did they start to re-invest.

Don’t panic about a market top, though. As you can see, we’re nowhere close to the recent inflows matching the historic outflows.

Don't Ever Go With the Flow: S&P 500 Index vs. 12-month U.S. Equity Mutual Fund Flows
To be fair, this chart doesn’t include exchange-traded funds, which are attracting billions in assets away from mutual funds. So it doesn’t give a completely accurate picture of investor behavior. But we don’t need it.

Countless studies confirm the “dumb money effect.” That is, our overwhelming tendency to buy at market tops and sell at market bottoms.

Understandably, our “bad timing” ends up costing us dearly, according to Credit Suisse’s (CS) Michael Mauboussin.

Over the last 20 years, the average mutual fund underperformed the S&P 500 by 1 to 1.5 percentage points. Yet the average investor underperformed the average mutual fund by 1 to 2 percentage points.

If you’re keeping track, that means individual investors only realize roughly 60% to 80% of the market return.

Don’t get depressed. There’s a straightforward antidote to the dumb money effect: Don’t try to time the market!

Or as Mauboussin says, “Avoiding the dumb money effect boils down to maintaining consistent exposure.”

Don’t Buy the Unemployment Rate Hype

Later this morning, the Bureau of Labor Statistics is expected to report that the U.S. unemployment rate fell to 6.5%. And undoubtedly, headlines will abound touting the dramatic “improvement” from the 10% level hit in October 2009.


We’re nowhere near a healthy labor market yet. Here’s the graphical proof, courtesy of Michael T. Darda, Chief Economist and Market Strategist at MKM Partners:

A Distressing Jobs Gap: Excess Unemployment and Underemployed Americans
Truth be told, we still need another 5.5 million jobs to get back to “full employment.”

As Darda explains, “Recent trends suggest it will likely take between 1.5 and 3.5 years for excess labor market slack to fully diminish. We thus expect the business cycle to last at least that long, especially if inflation remains contained.”

Amen to that! The last thing we need right now is another recession.

That’s it for today. Before you go, though, let us know if your company is hiring, how many Ukrainian bonds and Bitcoins you own – and, of course, what you think of our recent work at Wall Street Daily by going here.

Ahead of the tape,

Louis Basenese