Even in today’s economic environment, coming up with topics daily can be a challenge. So, when a reader asks a question, I am more than happy to answer it in this forum. Last week, I received a question in response to my article, ‘Chance of Recession: 100 percent.’ The reader wanted to know what the recession meant for bonds, especially in the coming months when markets will be volatile. That’s… Read More
Yesterday, I discussed corporate bonds, and how their yield tells us something about investor risk appetite. You can read the article here. The same thing applies to non-investment grade bonds, which are also called ‘high yield,’ or less pleasantly, ‘junk bonds.’ The first chart below is exactly like the first chart in yesterday’s article, but also includes the yield on junk bonds (in yellow) in addition to Treasury bonds (in blue)… Read More
One of the areas of the market that we’re paying close attention to right now is corporate bonds. To raise money, companies borrow money in the form of bonds or issue stock by selling ownership in the form of equity. Corporate bonds are safer than stocks in the aggregate because if a company fails, the bond holders get their money back before the equity holders. While corporate bonds may be… Read More
Investors have been hyper-focused on every word that comes out of every Federal Reserve official since October, but when the European Central Bank (ECB) made a major policy reversal last week, the markets yawned. Ten years ago, Warren Buffett described the 2008 financial crisis as akin to a heart attack. The Fed, acting as a physician, prescribed zero interest rates and when that wasn’t enough, they tried an experimental strategy known as quantitative… Read More
Five years ago, at the five-year anniversary weekend remembering the collapse of Lehman Brothers, I wasn’t ready to deal with the bad memories of that terrible time. Granted, what happened 10-years ago in financial markets was not like being in a war, a natural disaster, sick with a terrible disease or the victim of a terrible crime, but it was still upsetting to me (no doubt because I live in… Read More
It finally happened. For the first time since 2014, the yield on the 10yr Treasury just traded over 3.0%. For months, many have proclaimed that 3.0% is the Maginot Line that, if crossed, spells impending doom for the markets. While it is easy to get excited about round numbers, the reality is that the economic impact of 3.0% is no different than 2.99%. The Treasury rate that I really find… Read More
Over the last few months, I’ve read multiple articles making the claim that the correlation between stocks and bonds is shifting and that the new relationship will negatively impact portfolios. One recent Bloomberg article, titled ‘Easy Allocation Models ‘Doomed’ as Diversification Breaks Down’ really set me off and caused me to take a closer look at some of these claims. The thrust of the claim is that the recent negative… Read More
What the heck happened? Stocks were rolling along, picking up steam even, when all of a sudden, out of the blue, ‘POW!’, the index hit a wall. In reality though, while the move lower was a surprise, it wasn’t really all that surprising. It’s true that I couldn’t have told you the week before that stocks would have fallen sharply last week, but a move like this really isn’t out… Read More
The new 2018 tax laws are already having a major impact on investment portfolios. Lower tax rates, especially the decline in corporate rates, has boosted optimism for economic growth and higher wages which has manifested itself in higher stock multiples and higher prices. The opposite has happened with interest rates. Higher growth and wages would be expected to bring higher inflation too. Increased inflation expectations along with an expectation for… Read More
The yield curve has been a very hot topic lately in the financial news media. Multiple times a day, there are commentators pointing to the yield curve as a sign that markets are on the verge of imploding. Is it time to panic? The Federal Reserve has continued to push short term rates higher throughout 2017. Long term rates have responded by falling 10 bps. This has led to a… Read More
