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Posts Tagged ‘Cash’

Cash Outperforms

February 6th, 2019 by Kurt L. Smith

By any measure, 2018 was a tough year for investing. The one asset class that outperformed all others was Cash. That statement, in a world of tens of trillions of dollars of investments at stake, should be chilling.

Besides Cash, with a return of 1.8% for 2018 per S&P US Treasury Bill (0-3 month Index), there were a few small areas of positive performance. Municipal bonds per S&P Municipal Bond Index finished up 1.3%. We discussed municipal bond performance, or lack thereof, as suffering from lower prices. Prices fell on longer term municipal bonds, but not enough to drag coupon income into negative territory.

The predominant problem for 2018 investing was one of trend. We drew our line in the sand with our November 2017 ‘Top of Tops’ letter. Since then the winds of change are no longer at our back for stocks (they changed years ago in bonds), prices are trending lower. Both stocks and bonds are in bear markets now.

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Markets Move, Not In A Straight Line

January 3rd, 2019 by Kurt L. Smith

If the stock market is reflective of social mood, and I believe it is, then we have experienced quite a mood change in the fourth quarter of 2018. From all-time stock market highs to the lows of the year, to what may be the worst December stock market since the Great Depression, the market, and mood, has changed.

Your mood may have changed as no one likes to see gains evaporate, particularly at historic clips. Markets, as I have preached for years, do go up and down after all, so this must be a part of it. Yes they do, but ups and downs do not reflect the true risk with this market.

The reason I find it important to forecast and call changes in trend is because with each later stage of the thirty-plus year (if not ninety year) bull market, I see the risks inherent in subsequent turns as much greater than we have previously experienced. We therefore should not be surprised when the unusual or extreme occurs because, like prior downturns, we are aware the surprising will probably occur.  Or in this case, take December as an example. (more…)

Beginning To Feel It

December 4th, 2018 by Kurt L. Smith

Compared to this time last year, I am willing to bet you are feeling a little less certain about your financial situation. Rather than reading about “global synchronized growth” you are now primarily concerned about U.S. growth or just growth period. And looking at your stock portfolio you may be wondering just what did happen, or not happen, in 2018.

It was this certainty of beliefs that led me in late 2017 to call a Top of Tops in November 2017, not only for stocks but also vis-à-vis bonds at the time. While the timing turned out to be premature, as stocks widely peaked a couple of months later, it was sentiment that led to the forecast.

Some of you may wish that you had lighted upon stocks prior to 2018. Volatility, which seemed to become extinct in recent years, reared its ugly head as a reminder that investments are not a perpetual growth machine; investments are part of markets and their prices will behave accordingly.

This is important to remember as my forecast of a trend change in stock prices has now become an actual trend change in stock prices. Together with the 2012 trend change in the direction of interest rates and you now face the double whammy of bear market trends in both stocks and bonds. (more…)

Stocks Are Down Ten Percent, Now What?

October 31st, 2018 by Kurt L. Smith

This past week the S&P 500 traded ten percent below its all-time high set just a few weeks earlier on September 21st. This letter also marks the one year anniversary of my letter entitled Top of Tops. Why wait until year-end to write the year in review when an anniversary will do.

Last November we were well into the Bond Bear Market that began in 2012, yet few talked about it or even noticed. We have been keeping score using the US Treasury ten year note which hit 2.01% on September 8th, 2017, 2.47% a few weeks later on October 27th and traded October 9, 2018 at 3.26%. Indeed bond yields are running higher, sending longer-term bond prices ever lower.

The bellwether thirty year US Treasury bond posted a low of 2.63% September 8th, 2017 and recently traded at 3.44% on October 9, 2018. A year later we have seen significantly more analysts, pundits and investors join the bond market bear camp but as I said last month, interest rates are rising so slowly (so far)  as to only minimally affect overall fixed income investment returns. (more…)

Never Sexy

September 6th, 2018 by Kurt L. Smith

Another month, another summer. I hope your summer was worthwhile, mine certainly was. Usually things run slower during the summer months and again that was true in our little corner of the market. Yet, despite no one quite knowing how municipal bonds “work”, they continue to do so. For us anyway.

While some stock indexes hit new all-time highs last month, that doesn’t equate to much change at all over the past six months. Some say the same thing about municipal bonds, even the ones I’ve found for them, but these folks are thinking short-term. I don’t deal in the latest, shiniest object. Nothing sexy here.

Cash and cash alternatives are rarely sexy. Yet this is the asset class which I believe is rising in prominence and will continue to do so over the next number of years. It is also an area of expertise that not many people possess.

Anyone can buy treasury bills, short-term notes and bonds and call it cash alternatives. Do it for as long as you want, then let’s compare your returns. Oh, you’ve come up with a new way to skin a cat…. again let’s compare returns. (more…)

The End of Slow

July 6th, 2018 by Kurt L. Smith

Halfway through the year and still no Bond Crash of 2018. Despite the double-digit losses in the longer US Treasury market discussed last month, the sell-off is orderly. With a recent temporary pause (treasury bond prices have bounced the past six weeks), the set up remains quite ripe for the Bond Crash of 2018.

Stocks are doing their part as well. Take a look at the Dow over the first six months of the year. A sharp rise into January’s record highs only to swoon into February’s dive. Given ample opportunity for investors to buy this year’s dip, the Dow has instead delivered how a bear market behaves. Gapping down, filling gaps, falling further and partial retracements of late…these are bearish descriptions of the Dow over the past weeks.

We are left with a bond market bear that began in 2012 and the beginning of one for stocks. This, despite record profits, surging growth, tax cuts and off the chart optimism in just about every metric out there. The market doesn’t care; the market is a market.

The importance of these paragraphs are not because they portend change, a change we can all ride out together. No. These paragraphs and my years of harping on this subject is because the changes will be generational, unfathomable changes. (more…)

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