Posts Tagged ‘bubble pop’

Rates Rise; Who Cares?

March 8th, 2017 by Kurt L. Smith

These are heady times in the stock market. As market indexes set historical all-time highs, who cares about bonds? Stocks are all the buzz.

Back in August my letter was First Bonds, Now Stocks. “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.” Gather it has. The Dow Jones Industrial Average traded at 17,063 on June 27^th, 2016; on March 1^st, 2017 it was 21,169 for a 24% rise.

Meanwhile the bubble on Bonds did indeed burst as ten year Treasury yields bottomed at 1.32% on July 6, 2016, before doubling to 2.64% on December 15^th. So while stocks were gaining steam, bond prices were indeed weakening as yields doubled. As the Dow rallied, ten year Treasury bonds sank, producing an 11% price loss into the December yield highs. The long bellwether Treasury bond was down 22% in price over the same period.

Both the rise in stock prices and the fall in Bond prices were expected. After bond prices bottomed in December we expected prices to bounce and indeed the bounce appears to be over such that prices are trending lower again as the yield on the ten year treasury is back over 2.50%.

January’s Letter, Lines In the Sand noted Big Bill Gross’s line at 2.60% for the ten year treasury. At just over 2.50% as March begins, we are within striking distance. (more…)

Another Step Closer

March 3rd, 2016 by Kurt L. Smith

Markets go up and markets go down. We all know this. We should also know that we are fortunate to live in an era in which markets have trended higher for decades. Unfortunately we now live in an age of asset bubbles with the largest bubbles of all, Stocks and Bonds, on the verge of a massive popping.

We have watched the popping of two asset bubbles over the past several years: According to Bloomberg, Precious Metals (Gold & Silver) and Oil. Gold peaked in September 2011 at $1920 an ounce, falling 45% over the following four years to a $1046 low. Silver almost touched $50 an ounce for the second time in its history and sold off to below $14. Oil peaked at $147 in 2008 but sold at $107 just nineteen months ago and below $27 last month. Markets do go up and down, but in today’s age of asset bubbles, one must be ever mindful of the tremendous downside risks that exist. (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…)

“Welcome To The Everything Boom”

July 20th, 2014 by Kurt L. Smith

The July Letter almost didn’t make it as the same old, same old markets continued their gravity defying ways. On July 7th however, The New York Times saw fit to publish this headline as their front-page lead: “From Stocks to Farmland, All’s Booming, or Bubbling.” (more…)

The Great Wait May Be Over

February 11th, 2014 by Kurt L. Smith

The optimism, the good news, the earnings reports and everything else wonderful has culminated in the beautiful rise in stock prices. Climbing the Wall of Worry? There is no worry as this one way freight train moves only in one direction smashing all the remaining bears with it. (more…)

High Prices Be Damned

December 20th, 2013 by Kurt L. Smith

For some things in life, the price is the price. You must pay it because you have to or you need to pay it. With one son in college and another on his way next year, I know all about prices one must pay. Some people look at investing the same way: the cost is the price one must pay. (more…)

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