Investing Tug of War

I hope you are doing well and are enjoying life as August comes to a close. For an investor, a good way to describe this past week is to think of the game Tug of War. I will illustrate this in the middle section. The first section is from Vanguard. The last section is more trivia on the subject of the Tomb of the Unknown Soldier.

Vanguard Weekly Recap

The march to extreme caution quickened its pace this week led by more disappointing news for the fragile economy. Key reports on housing, new orders, and national output indicate that the economy, still buffeted by slow growth and persistent joblessness, remains far from reaching a sustained recovery. Amid this discouraging environment, Federal Reserve Chairman Ben Bernanke—in widely anticipated comments on Friday from Jackson Hole, Wyoming—said the central bank stands ready to help dig the economy out of the doldrums but didn't indicate what tools he would use to do so. For the week ended August 26, the S&P 500 Index rose 4.7% to 1,176.80 (for a year-to-date total return—including price change plus dividends—of about -5.2%). The yield on the 10-year U.S. Treasury note increased 12 basis points to 2.19% (for a year-to-date decline of 111 basis points).

Tug of War

I think the best way to describe investing for this year is to use the game of tug of war. As you recall, in this game each side is pulling against each other to move a rope a distance so that a team can win. Normally, during the game the number of players on a team are fixed.

For investing the teams for this tug of war are gold and US Treasury Bonds on 1 side and Stocks on the other side. As gold and US Treasury Bonds go up, stocks go down and vice versa. What makes this game unique is that investors have no loyalty and are either switching sides on a continual basis or putting their money in cash and leaving the game all together.

Who will win this tug of war during 2011? My money is on Stocks since Corporate profits are at an all time record high, about 10% higher than the previous peak in 2006 while the price of gold and US Treasury Bonds are inflated, making absolutely no sense.

Just watch for yourself this week the price of gold, the interest rates on the 10 year US Treasury Bond, and the S&P 500. Since this tug of war exists, this is why a balanced portfolio has both stocks and bonds.

Tomb of the Unknown Soldier Trivia

• Originally called “The Tomb of the Unknown Soldier” it is now called “The Tomb of the Unknowns.” (This change has not been ratified by Congress.) This is the result of WWII, Korean War and the Viet Nam War.

• The guards are called “sentinels” not guards. The sen-tinels wear no insignia of rank on their uniforms so as not to outrank the “unknowns” buried there.

• The sentinels stop on the 21st step, do a ninety-degree turn and face the Tomb for 21 seconds, turn ninety de-grees again hesitate 21 seconds before beginning their return walk. This walk is done on a black mat.

• Why are the sentinels gloves wet? Their gloves are moistened to prevent losing their grip on the M14 rifles, which are unloaded, but kept ready for use at all times and always have a bayonet fixed.

• How many women have served as sentinels? Three.

• Do the sentinels carry their rifle on the same shoulder all the time? No. They always carry their rifle on the shoulder away from the tomb. After they walk 21 steps across the mat, they execute a ninety-degree turn and move the rifle to their outside shoulder.

• How often are the sentinels changed? Sentinels are changed every thirty minutes during the summer – (April 1 – September 30) - and every hour during the winter (October 1 – March 31.) During the hours the cemetery is closed, the sentinel is changed every two hours. The Tomb is guarded twenty-four hours a day, 365 days a year. There has been a sentinel on duty every minute of every day since July 2, 1937. Currently the sentinels work on a three Relief (team) rotation. 24 hours on, 24 hours off, 24 hours on, 24 hours off, 24 hours on and 96 hours off.

• What are the physical characteristics of all sentinels? For a person to apply for sentinel duty they must be be-tween 5’ 10” and 6’ 4” tall and their waist size cannot exceed 30 inches. They are assigned to Relief Teams by height. This is done so that each team will look as identical as possible.