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The bond market performance story for 2022 has not yet been fully written, but unprecedented, the word used in these letters over the past several months, will surely be included.

It’s A Bull, Bull, Bull World

November 30th, 2022 by Kurt L. Smith
  • After forty years of bull market in financial assets, one can only imagine how difficult a change in trend may be to recognize. We live in a bull market world, enjoy the bull market experience and we have been doing so, for so long, we believe it is just the way things are.

    The bull market has existed for both stocks and bonds for decades. Rather than serve to diversify one’s portfolio, stocks and bonds have been in a tortoise/hare race to the top. Unlimited optimism, or even abundant optimism, can only push bond prices so high, but for stocks, truly the sky was the limit.

    So, it might make sense that the bond market might be the first to signal the bull market is over. The bond market performance story for 2022 has not yet been fully written, but unprecedented, the word used in these letters over the past several months, will surely be included.

    Yet despite a treasury bond trading at half its value over a two-plus-year span, you would think investors would recognize this as a bond bear market. Staring at not only the worst bond market return in decades, but perhaps ever, we saw bond prices soar in November with Bloomberg saying last week “municipal bonds are having their best month in almost four decades.”

    Not only municipals, but treasuries have had a stellar November, not to mention stocks with the Dow Jones Industrial up over 5000 points since mid-October per Bloomberg. In a bull, bull, bull world, buying the dips is what one does.

    Unfortunately, we are not in a bull market any longer, no matter how we try to talk ourselves away from it. With the trend in the markets down, the trade now is to sell. Steep, quick, powerful moves like we have seen over the past few weeks are hallmarks of bear markets, which make it very difficult to make money on your investments. Buy and hold is no longer the answer; protect your assets is the answer.

    The bull market world stuck out to me as I read this week an obituary of John Y Brown, Jr. in The New York Times. Mr. Brown was known for marrying Denton native and University of North Texas sweetheart, Phyllis George, but what caught my eye was how the NYTimes described Mr. Brown as buying Kentucky Fried Chicken from its founder Harlan Sanders in “for $2 million in 1964 (about $19.3 million today).” The obit continued, saying he later sold the business in 1973 “for a personal profit estimated at more than $30 million (about $225 million today).”

    While turning a $2 million investment into $30 million fifty years ago may be obit-worthy, it was nice of the NYTimes to gross up those figures to perhaps make them relevant today. I am assuming they are using inflation to calculate today’s figures, though they never reference it. What stood out to me is we no longer seem to live in a world of millions, but now billions. Inflation didn’t make it so; the bull market made it so.

    Every day we look in the mirror and tell ourselves that nothing has changed, yet it is, and it has. Therefore, action is so important. The change over the past forty years of the bull market has been dramatic. Buy and hold made you a winner. Now a bear market could be every bit as dramatic, and it demands action on your part as holding bonds (has been) and holding stocks may be hazardous to your financial health.

    No one has an interest in calling for or wishing for a bear market. But this is our new reality and the sooner you act on it, the better. Unlike the multitudes of investors, you have an alternative and I appreciate the opportunity to serve you. Now is the time to take the next step, to protect the assets that the bull market has helped increase in value.

    The optimism of today’s bull, bull, bull world was never going to last forever. And after forty years, even a small move back to earth may result in unprecedented results. Keep yourself protected; help others do the same.

    City of Grand Prairie, TX

    Water and Wastewater System Revenue Bonds, Series 2022

    AAA S&P Underlying

    Due 1/15   Dated 12/14/22 Maturity 1/15/43

    $10,765,000 Sold

    Years   Maturity           Coupon      Yield*

    2         2025             4.00%           2.98%

    3         2026             5.00%           3.03%

    4         2027             5.00%           3.04%

    5         2028             5.00%           3.05%

    6         2029             5.00%           3.08%

    7         2030             5.00%           3.11%

    8         2031**          5.00%           3.15%

    9            2032**       5.00%           3.19%

    10          2033**       5.00%           3.23%

    11          2034**        5.00%           3.35%

    12          2035**        5.00%           3.45%

    13          2036**        4.00%           3.90%

    14          2037**        4.00%           4.00%

    15          2038**       4.00%           4.03%

    16          2039**       4.00%           4.06%

    17          2040**       4.00%           4.12%

    18          2041**       4.00%           4.18%

    19          2042**       4.00%           4.20%

    20          2043**       4.125%         4.23%

    *Yield to Worst (Call or Maturity) ** Call 1/15/30

    Source: Bloomberg

    This is an example of a new issue priced the week of 11/16/22

    Prices, yields and availability subject to change


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