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Posts Tagged ‘narrative’

Protect Yourself

July 15th, 2020 by Kurt L. Smith

In my opinion, markets perform like markets. Narratives may try to explain them, but the narrative is a lie. The market did not go up because of ‘X’ or ‘Y’, the market just went up.

For the past several years I have been writing about the end of something, specifically the end of asset (stock, bonds, gold) prices rising trend. This was the case at the beginning of the year, as well, before we learned to spell corona.

Six plus months into this lousy year, just where are we? Let’s start with bonds because it is easier, or should be, to recognize a top or the top in bond prices when the price of a bond is just about the sum of all cash flows to be received throughout the life of the bond because the yield isn’t worth noting as a discount.

Look at this month’s bond sale from Tarrant County College District, Texas (below). Are those yields just not ridiculous? Would you entrust your money to a governmental entity for any length of time at those low (no) yields?

As discussed in my March 6th letter, earlier this year, whether you buy these yields or not is irrelevant. What is relevant is these are the yields that are used to price mutual funds and other portfolios of bonds. These low (no) yields, along with their treasury and corporate counterparts mean tens of trillions of dollars of fixed income portfolios are priced so fully as to negate future upside.

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First Bonds, Now Stocks

August 8th, 2016 by Kurt L. Smith

The bond market has performed well of late and municipal bonds added to their top ranked performance last year. Yields seem to move in only one direction, down, making prices appear to only go up.

Around the world bond prices have gone up so much, yields on trillions of dollars of bonds are now negative. The trend in bond prices has continued for so long (thirty-plus years) and has produced seemingly consistent returns for so long, investors seem loath to do anything except buy more.

Whatever the reason, whatever the narrative, almost all pundits are on the same side of the boat: low yields and high prices will continue. Money managers may be buying high priced negative yielding bonds now because they are judged on their current performance, not the negative performance calculated if they hold the bonds to maturity in five, ten or more years. Good performance seems to beget good performance, so enjoy the ride!

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. Stocks rebounded from their early season low in February and new all-time highs are being set regularly of late. Like bonds, as the rally continues to gather momentum, expect stocks to generate excitement, the excitement previously held for bonds. (more…)

We Have Top Men Working On It

February 10th, 2016 by Kurt L. Smith

In late January the Federal Reserve’s Open Market Committee voted to do nothing.  Unfortunately they had to say something and it was that something that reminded me “we have top men working on it.”  Here the top man is a woman, Chairman Janet Yellen.

The Fed’s luster was destined to pale from the days in 2000 when Chairman Alan Greenspan was dubbed Maestro for his deft maneuverings.  Chairman Ben Bernanke was Time Magazine’s Person of the Year in 2009, having saved the world, or at least us, from certain financial ruin.

So from Chairman Yellen we ask “what have you done for us lately?”  Stocks swooned in August but recovered by December only to have the Federal Reserve vote to hike interest rates for the first time in ten years.  Now that stocks have swooned again to begin 2016 we find the Fed to be hesitant in its plans to normalize, I mean raise, short-term interest rates. (more…)

The Mood of Municipal Bonds

June 2nd, 2014 by Kurt L. Smith

When one thinks of municipal bonds, generally the next thought is…boring.  Bonds are usually boring; adding municipal to the mix should make them more so.  Bonds have a job to do and for most of the past several decades they have performed.  Primarily we have the trend to thank. (more…)

The Fed Chooses To Punt

October 7th, 2013 by Kurt L. Smith

The Federal Reserve Board chose to do more of the same in September and will continue to buy bonds at a $1 Trillion annual pace.  All that hub-bub earlier in the summer about pulling back, now coined as tapering, well you can just forget that.  The Stock market is at recovery highs and why rock the boat? (more…)

Watch The Markets, Not The Fed

May 8th, 2013 by Kurt L. Smith

The Federal Reserve, along with most Central Banks around the world, are creating Cash and Credit at an unprecedented pace in the most ambitious economic experiment of all time.  Yet despite Central Bankers attempts to create Cash and Credit (and hence inflation), the price of Gold fell from over $1900 to almost $1300. (more…)

Wash, Rinse, Repeat

March 8th, 2013 by Kurt L. Smith

Stocks are cheap!  Compared to Bonds, Stocks are cheap, but then again, everything is cheap compared to Bonds.  This is the narrative driving Stock prices to multi-year and even all-time highs. Enjoy while you can but this narrative has no legs, despite the desires of all the central banks on the planet. (more…)

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