Posts Tagged ‘bond bear market’

Not The Same As The Old Year

January 11th, 2018 by Kurt L. Smith

Happy 2018 to you and yours! I hope 2017 was a good year for you and may 2018 be wonderful.

One always tries to keep the wind at your back and this appears to be the consensus with investors. Optimism is extremely high and the business press (and stock market performance) reflects this sentiment.

This is the definition of trend. To be the trend it must show general tendency AND it needs to continue long enough to get noticed. The trend is your friend because you are an investor, not a trader. The trend can provide you sound grounding to make decisions as well as a framework for what may come.

These past several months we have discussed the next move in the continuing trend for bonds as well as a change in the trend for stocks. Bonds hit their high in price (low in yield) on September 8^th. Since then, rates have slowly risen, while I believed they would move up faster. The ten year US Treasury was 2.01% in September, a 2.47% high in November and a new 2.50% high in December. Two year treasuries were 1.25% in September, 1.78% higher in November and a new 1.92% high in December and 1.97% this past week.

The reason I continue to write about bond yields is because it is important to know the trend. I marked the end of the bond bull market back in 2012. Buyers of long-term bonds back in 2012 invested in low yields, their current bond value is less to boot as rates have risen and bond prices have fallen. (more…)

They Are All Markets

December 15th, 2017 by Kurt L. Smith

Well, so much for Top of Tops. Last month’s market call that both bonds and stocks were headed lower, proved premature. The September-October bond market decline failed to gather downward momentum while stocks added another leg upward.

While 1,000 Dow points isn’t what it used to be (lately about 4%, whereas 10% or more in years of yore), it is still 1,000 points. For me, a 1,000 points of wrong, but that’s the way markets can behave.

Take Bitcoin, everyone’s favorite (new) subject. In what appeared to be a frothy, over-extended market, Bitcoin merely added another fifty percent. And that was just last week!

Does one have to do with the other? Can the frothiness of Bitcoin and the added leg up in stocks or the pause in the bond bear market be related? Yes, they are all related: they are all markets. (more…)

Slow Moving Bond Bear To Quicken

October 16th, 2017 by Kurt L. Smith

The trend is indeed your friend and the only friend one has needed these past few years has been the one in stocks. Despite the fact that municipal bonds were the best performing asset class in 2014 (yeah, that long ago), stocks are where the action is. Enjoy it, because trends change.

When it comes to bonds, only two words are needed: low rates. Forget trend change; forget even a price or yield change. When it comes to bonds, low rates is all you need to know. Spoken by stock market pundits, why would anyone be concerned about bonds? Stocks are where the action is.

Rates are indeed low, but they have been lower. The reason we care is because the trend is your friend and when it comes to bonds, the trend has changed. You know it because I keep telling you. Sure it’s a lonely proposition, but the market continues, albeit v-e-r-y slowly, that I am indeed correct.

In June, I believed a 2.13% low on the ten year treasury completed the bond market’s correction of the 1.32% to 2.64% initial move up. Yep, I tried to hurry the market. In September the market hit 2.02%. But last week we were back to 2.40%. I like my proposition!

At rates of 2-this or 2-that, every stock investor will continue to claim the low rate mantra. But after a 1,000 or 5,000 point decline in the Dow, the perspectives will change. The story will change. (more…)

The Plan Unfolds

July 13th, 2017 by Kurt L. Smith

It has been twelve months since the end of the hockey-sticked shape mania of long-term bond prices. Markets don’t trend in straight lines, so over the past twelve months I have used this letter to help you navigate where we are on the journey towards a collapse in long-term bond prices.

The July 2017 letter called the top in long-term bond pricing while subsequent letters followed the initial move to December lows and last month’s call that the correction was over. After a correction price high on June 12^th, long-term bonds have declined in price for the past twelve trading days (as of the writing of this letter).

Of course it may be better to be lucky than good, but I will accept any good fortune that comes our way. This letter provides me the opportunity to put forth my opinion, however much in the minority it may be, and I intend to take the opportunity because I believe it is quite important when a collapse in the long-term bond market is involved. (more…)

Capitulation

June 14th, 2017 by Kurt L. Smith

It is not often that followers of the all-too-staid bond markets get to use the word capitulation. Usually things don’t move fast enough (or far enough) to warrant the use of the word. We, however, having declared the end of a three decades long trend, see a significant change taking place.

We marked late 2012 as the end of the bull market in Bonds, though the hockey-stick final mania in the longest maturing bonds didn’t occur until last spring, culminating July 6, 2016. Shorter term bond yields had risen since 2012 while the 10 year US Treasury bottomed at 1.32%, a significant turning point in trend.

The second half of 2016 saw yields spike to 2.64%, such that by year-end (December 2016 Letter) we called for a correction of this first move in the long-term bear market for long-term bonds. Indeed yields moderated back down to 2.13% early in June. So far so good and right along our projected path.

Which brings us to today. Actually it was a June 9^th Bloomberg headline that used Capitulation, saying “Investors betting on rising bond yields just threw in the towel in a big way, according to Bank of America.” Citing the “biggest inflows to bonds in well over two years”, BofA concluded the performance of credit equities are “highly correlated.” (more…)

Rates Rise; Who Cares?

March 8th, 2017 by Kurt L. Smith

These are heady times in the stock market. As market indexes set historical all-time highs, who cares about bonds? Stocks are all the buzz.

Back in August my letter was First Bonds, Now Stocks. “If you liked the bond market rally this year, then I think you will really enjoy the stock market rally which appears to be gathering steam.” Gather it has. The Dow Jones Industrial Average traded at 17,063 on June 27^th, 2016; on March 1^st, 2017 it was 21,169 for a 24% rise.

Meanwhile the bubble on Bonds did indeed burst as ten year Treasury yields bottomed at 1.32% on July 6, 2016, before doubling to 2.64% on December 15^th. So while stocks were gaining steam, bond prices were indeed weakening as yields doubled. As the Dow rallied, ten year Treasury bonds sank, producing an 11% price loss into the December yield highs. The long bellwether Treasury bond was down 22% in price over the same period.

Both the rise in stock prices and the fall in Bond prices were expected. After bond prices bottomed in December we expected prices to bounce and indeed the bounce appears to be over such that prices are trending lower again as the yield on the ten year treasury is back over 2.50%.

January’s Letter, Lines In the Sand noted Big Bill Gross’s line at 2.60% for the ten year treasury. At just over 2.50% as March begins, we are within striking distance. (more…)

Lines In The Sand

January 19th, 2017 by Kurt L. Smith

On January 10^th, Big Bill Gross the Bond King, drew his line in the sand referencing the ten year treasury yield at 2.60%. If the ten year yield goes above 2.60% this year, said Big Bill, the bear bull market would be on and its effects on the stock market would be felt.

Now you tell us Bill. After a historic first half of 2016 which gave us the final throes of a mania in Bonds, we experienced a historic sell-off in the second half with yields doubling from July to December in ten year yields. Indeed, the bear market for bonds has not only begun but, depending on maturity horizon, has been in place since 2012.

With the stock market continuing its version of the Bonds final mania, Big Bill probably also knows that nobody cares. Off his throne at PIMCO, Big Bill probably needed to reference stocks in his bond bear market call for relevance sake.

Until the mania in stocks ends, and like the long bull market in bonds, it will end, no one will probably care, or notice, the bond market. Investors in stocks are making money just by owning stocks, not by listening or following experts like Big Bill. (more…)

The Wait Is Over

December 7th, 2016 by Kurt L. Smith

I love it when a plan comes together. The August letter, First Bonds, Now Stocks, could not have been more spot on. The latest rally in Bonds began to reverse in July and it appears the first move towards a Bond Bear Market is now in place. And indeed the excitement the markets reserved for Bonds earlier this year did indeed move to Stocks with a recent exclamation point capping a three thousand point move up in the Dow that began in February.

For those of you reading the press clippings of these latest moves, please remember the narratives are worthless. Trends do not extend forever and long-time readers of this letter know I have been preparing for a change in the long-term trends of Stocks and Bonds for some time.

My excitement that my long wait may finally be over is based on the excitement both the Stock and Bond markets registered in 2016. Soaring prices, plunging and even negative yields, characterized the Bond market all spring long. Prices topped (and yields bottomed) in July with the bellwether thirty year US Treasury bond at 2.08%; by the first of December it was over 3.08%, an almost 50% jump in yield and 19% plunge in price. (more…)

We Live In Interesting Times

September 1st, 2015 by Kurt L. Smith

While waiting for the next move higher in long-term interest rates, the Dow decided to shed 1000+ points. And that was only in the first eight trading days following the publication of the August Letter. (more…)

Municipals, Bonds Without Peers

April 21st, 2015 by Kurt L. Smith

When will the Federal Reserve raise interest rates? This is the question investors want to know. Yet I will tell you, it does not matter. The market tells us interest rates began to rise in 2012; the market will tell us how fast interest rates rise from here. (more…)

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