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Posts Tagged ‘bond bull market’

March 6th

March 30th, 2020 by Kurt L. Smith

I pray this letter finds you and your loved ones healthy. My prayers are with the first responders and the healthcare professionals on the front-line saving lives and protecting ours.

This is the most important letter I have ever written. My hope is you will pass it along to your loved ones and friends because I believe the message is very important.

I have spent my entire career, over thirty years focused on the bond markets. Long-time readers know I have been writing that the latest move in financial assets (stocks, bonds, gold) is the end of something, namely the end of their long-term bull markets. As tens of billions of dollars is now being poured into cash in the form of money market accounts, it appears some may agree, and they may be scared as well.

I know you have a choice with your money, and I appreciate your trust in me and my abilities especially in these volatile times. I believe it is important for you to more fully understand bonds as well as sharing this letter with others who may find it helpful.

In the United States, bonds account for about $33 trillion dollars in assets: US Treasury securities make up about $17 trillion, corporate bonds $10 trillion, mortgages $10 trillion and municipals $3.9 trillion (all courtesy of SIFMA.org). The Federal Reserve has recently increased its balance sheet to $5 trillion, primarily in US Treasuries and mortgages (courtesy federalreserve.gov) leaving a lot of bonds in other’s hands with the bulk either professionally managed including in mutual funds.

Mutual funds, with their quoted net asset values (NAV) and performance data available on the internet may appear to be similar as both can easily be reallocated with a point and a click.  Both have the same disclaimer: “Past success does not guarantee future performance.”  But they are as dissimilar as a stock is from a bond.

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Prepared?

March 5th, 2020 by Kurt L. Smith

From record high to worst week since the financial crisis in October 2008, stocks ended thirty-plus years of bull in dramatic fashion. The top bull in the better than best of recent asset pricing is taking the leadership role in the great deflate.

From a high of 29,568 on February 12 to an end of month low of 24,681, the Dow Jones Industrial Average has lost over 4,000 points with 3,600 of it in one week (source: Bloomberg). This is not your normal pull back. This is not the buy the dip (one more time!). This is the end we have been talking about since November 2017 in my letter, Top of Tops. In that letter I noted 23,500 as the all-time high turning point for stocks. The extra run since then was a bonus.

You all know I have been writing about asset prices being at the end of something. From the depths of the financial crisis in March 2009 to February 2020, it was quite a ride. A ride I believed would be over (in November 2017) but continued through Groundhog Day (after Groundhog Day) 2020.

Consequential? Unbelievably so. This isn’t even the worst part. From my point of view stock investors “haven’t lost anything” as they are still ahead of November 2017. No, the worst part is ahead of us because it involves the bond market.

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High Demand for (Low) Yield

December 16th, 2019 by Kurt L. Smith

Long-time readers are well aware of my call to the end of the thirty-plus year bond bull market in 2012. That’s seven years now behind us. For long-term bonds this period has been quite a topping process (in 2012, 2016 and again in 2019) with the primary result being the tremendous issuance of new debt.

Treasury debt has exploded from $4.3 trillion in 2006 to $15.9 trillion in 2019 (Q2). My debt figures come from a wonderful website, www.sifma.org, check it out.  Luckily the Federal Reserve has been there as the primary buyer, expanding their balance sheet in various quantitative easing programs.

Right behind treasuries in debt expansion is corporate debt, rising from $4.9 in 2006 to $9.5 trillion (Q2). Federal Reserve Chairman Jerome Powell said in October that “leverage among corporations and other forms of business, private businesses, is historically high” –Bloomberg.

Indeed, not only are bond prices high (yields low) but there are more of them! As long as “lower-for-longer” holds, values should hold. Interest rates are low, so low it would appear that negative interest rates are a closer reality than higher interest rates.

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Sell Bonds

September 12th, 2019 by Kurt L. Smith

The Select ApproachTM believes the bond market correction of the past nine months is now over.

Last month we talked about the giddiness of bonds and that giddiness delivered bonds onto the front pages of the major dailies. The New York Times on August 28th probably marked the high prices with this headline “While Wall St. Talks of a Recession, Bond Investors Make a Killing. You should have bought bonds. They’re going great.”

The NY Times also included a nice chart of year to date returns. “Thirty year Treasury bond +26.4%, Long-term bonds +23.5%, Investment-grade corporates +14.1% and Ten Year Treasury notes +12.6%.” Indeed, stellar returns essentially describes the bond market correction of the past nine months.

In order to reap the rewards of this year’s bond market moves, one must sell. Not your Select ApproachTM bonds, but everything else. This market move was a trade, and a short-term one at that, and now it is over. The bond market is in a long-term bear market since 2012. Prices move down (yields rise) setting the trend and in order for the market to continue to lower prices, a correction needs to occur. Ebb and flow happens but the important part is the direction of the trend for bond prices is lower.

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Correction Highs (And Lows)

July 11th, 2019 by Kurt L. Smith

For the past several months we’ve seen giddy up; now we are left only with giddy. Be it Stocks, Bonds, or even Gold, asset prices have generally had a nice 2019 bounce. To a large extent asset prices have peaked together. Unfortunately the rallies appear to be over, meaning lower prices from here.

How can that be? The news is great, prices are rallying and even the Federal Reserve appears poised to lower interest rates as yields have shriveled as US Treasury note and bond prices have jumped. The trend should be our friend and the trend is up, across the board for assets, right?

Wrong! The trend is not up. Despite nice gains for this year, assets are in the midst of finishing upward corrections. Gold, which peaked in September 2011 at $1921, bottomed in December 2015 at $1047 where it began a rally that may have recently ended at $1440 last month (all asset prices and dates per Bloomberg). While an additional advance may unfold, the next major move in my opinion is lower, to new lows rather than new highs.

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Depths of Summer

August 6th, 2018 by Kurt L. Smith

Heady days and bond markets rarely go together. Nor do the terms ‘bond market’ and ‘news’. Add summer and vacations into the mix and the bond market becomes French. Absent.

I may exaggerate but not much. Thankfully we are not looking to keep up (or primarily down) with any bond index, we are not burdened by scale or the inability to find worthwhile bonds. Every day I get to practice and build my skills and every day things come together. Except in the summer, things come a bit more slowly.

Last month I discussed how the markets are poised for a fall. One more month without the Bond Crash of 2018, but the first of August brought ten year US Treasury note yields back to 3% for the first time in several months.  Most of 2018 has so far been a correction of the dramatically higher yields (and double-digit price losses of longer bonds). Whether we begin the next phase of higher rates and lower prices immediately or whether it takes a few more months, is not important. What is important is you are prepared and you are prepared because you own the proper asset, chosen by The Select ApproachTM. (more…)

Shot Across The Bow

March 1st, 2018 by Kurt L. Smith

While bonds continued their slow, steady march to higher yields (and lower prices), the stock market corrected. One thousand Dow points lost in just over an hour. Stock indexes swooned, even falling below the levels I marked in my November Letter as the Top of Tops.

I am sure you didn’t sell in November, just as I am sure you didn’t sell 3,000 points higher at 26,500 in January. You are not conditioned to sell; you are conditioned to buy the dips. We have enjoyed thirty-plus years of bull market reinforcement, not to mention every bit of economic, scholarly and sage advice written to further reinforce stocks for the long run.

Last month’s letter predicts the bond crash of 2018. Despite the stock market’s gyrations of late, the bond market neither soared or crashed.  The bond market continues to deteriorate, yet at a seemingly glacial pace over the past several months. Ten year US Treasury notes were 2.01% on September 2nd and touched 2.95% in February (Bloomberg) while activity in municipal bond markets remain somewhat muted. Overall, new higher yields for US Treasury notes and bonds, furthering the bond bear market but no crash, yet. (more…)

The Bond Crash of 2018

February 1st, 2018 by Kurt L. Smith

Another month of higher interest rates continues the upward trend since my call back in June that interest rates are moving higher.  A slow slog, yes, but bond prices are slowly sinking. The market continues to chip away at the general consensus of  “lower rates longer”.

This is the story of how a gargantuan bond market turns.

Over the course of the thirty-plus year bond bull market no discussion of bonds could be had without mention of inflation. As inflation heated up throughout the 1970s and peaked in 1980, bond prices collapsed…until they collapsed their last. Inflation figures began to decline as well. As double-digit inflation figures became a thing of the past, the bond bull market began to gallop.

Bonds and inflation are believed to be inexorably linked. When asked whether there is risk of even higher interest rates today, most investment professionals will answer no adding that inflation is benign. Ask them why rates are up dramatically in the past few months and  again, most would probably say that there has been a slight uptick in inflation.

As inflation goes, so goes interest rates. Or is it, as interest rates go, so goes inflation. One way or another, the general assumption is that interest rates and inflation are correlated. (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…)

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 9th 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…)

NEWS FEED

The $247 trillion global debt bomb washingtonpost.com/opinions/the-2…