For What It’s Worth

There’s somethin’ happenin’ here

But what it is ain’t exactly clear

There’s a man with a gun over there

A-tellin’ me I got to beware

I think it’s time we stop

Children, what’s that sound?

Everybody look what going down

–Opening lyrics by Stephen Stills, performed by Buffalo Springfield

Stills wrote this song in late 1966 and it became a hit in 1967. According to Wikipedia, Stills “was inspired to write the song because of the Sunset Strip curfew riots in Los Angeles in November 1966.” That year saw the first substantial decline of the Go-Go stock market of the 1960s as stock prices had almost doubled from a 535 Dow Jones Industrial in 1962 to 995 in early 1966 (all prices/yields per Bloomberg). The correction that began in 1966 endured for over fifteen years until our forty-plus year stock bull market finally shattered the Dow 1000 level for good in 1982. Adjusting for inflation rampant in the 1970s, it took many more years than that to get back to the 1966 stock market high.

We have had our own riots of late, many associated with Black Lives Matter following the murder of George Floyd in 2020. But with stocks recovering from their 2020 Covid Correction to new highs in late 2021 and early 2022, we have generally seen relative calm. That was two years ago, making the latest stock correction sideways (so far), similar to the late 1960s. Somethin’ happenin’ here, But what it is ain’t exactly clear.

What is clear is bonds are taking a beating. Long term bonds have lost ten, twenty, thirty, forty and even over fifty-plus percent of their value since their 2020 price highs. Banks own trillions of dollars of underwater bonds, but don’t you worry. Here in the US banks can deem their bonds as long-term holdings so they don’t have to write off any losses against them. For the banks and those who invest in them, willingly or unwillingly, there is hope.

There is no precedent for this kind of hope. Bond returns have never been negative three years in a row, but we are weeks away from that reality. Two-year U.S. Treasury notes traded at a new seventeen-year low price today (a 5.25% yield high) and are a spit away from twenty-plus year lows as a trade over the 5.27% high in 2006 would make 2000 the new benchmark. The ten-year treasury traded at a new cycle low at 4.99% and our favorite thirty-year bellwether treasury bond, the 1.25% of May 15, 2050, traded with a 43 handle (5.20%) down from over 100 in August 2020. Yes, that is down 57% over the past three years for a “risk-free” US treasury! It will take a miracle over the final two months of this year to avoid the unprecedented down three straight years in the bond market.

Damage has been done and if this damage becomes a crisis, much more bond market damage can occur. For those that remember the stock market of the 1970s, years and years without hitting a new high would be a crisis. The stock market correction of the 1970s was just that, a correction of the post war bull market. A stock market correction from here, after forty-plus years of bull could be much more devastating.

You know and realize that not all bonds are alike. Short term bonds are more aptly described as cash. Your reality of bond investing is not the reality others are experiencing. While others have invested in conventional bond market investments and have seen losses, some deep, your results have been extremely worthwhile. This is by design.

The song continues:

Paranoia strikes dep

Into your life, it will creep

It starts when you’re always afraid

You step out of line

The man come and take you away

We better stop, hey, what’s that sound?

Everybody look what’s going down

Why are bond prices continuing to sell lower? The answer is because it is a bear market for bonds. We have known this for three-plus years now. Will it have broad implications for other markets? It already has and will probably continue to influence other markets in ways many have never dreamed possible. Many of you remember the turmoil of the 1970s; stocks were not the answer. You need to keep your money safe. This has always been my focus. It is the reason your portfolio is different from others. I appreciate the opportunity to help you in this changing world and I would appreciate speaking with any others who might benefit from my approach, The Select Approach^TM.

Conroe Independent School District, TX

Unlimited Tax Refunding Bonds, Series 2023A

Aaa Moody’s ( Aa1 Under)      AAA S&P (AA+ Under)

Permanent School Fund Guaranteed

Due 2/15   Dated 11/1/23 Maturity 2/15/39

$51,025,000 Sold

Years   Maturity       Coupon        Yield*

1         2024             5.00%           3.90%

2         2025             5.00%           3.81%

3         2026             5.00%           3.79%

4         2027             5.00%           3.71%

5         2028             5.00%           3.68%

6         2029             5.00%           3.72%

7         2030             5.00%           3.75%

8         2031             5.00%           3.77%

9         2032             5.00%           3.82%

10        2033            5.00%           3.82%

11          2034**       5.00%           3.88%

13          2036**        5.00%           4.13%

14          2037**        5.00%           4.27%

15          2038**        5.00%           4.35%

16          2039**       4.00%           4.41%

*Yield to Worst (Call or Maturity) ** Call 2/15/33

Source: Bloomberg

This is an example of a new issue priced the week of 10/16/23

Prices, yields and availability subject to change