Time Marches On

Unfortunately, there is no finish line for investing. If there was, we could now declare stocks a winner, bonds a winner, gold a winner, real estate…well, you get the idea. But there is tomorrow to deal with, not to mention next year and years from now.

Investing is a longer period endeavor. Bond investors know this as every bond you buy reminds you with a maturity date. What will happen over the next year, or two, five or ten or more years? Bond investors confront this reality with every purchase.

Wherever you want to draw the line, financial assets have been winners. Year-to-date, last year or two, last five…they, for the most part, have been good times for you as an investor of financial assets.

All of that is in the past; investing is about the future. If investing were a race, it would be an endless one as time marches on. Decisions made can be worthwhile as well as decisions not made. Second-guessing can be debilitating and is to be avoided. That is why it is important to make sound decisions.

We are bond investors yet since March 6th bond portfolios are better sold than owned. After the March sell-off in bonds, yields have moved lower, prices higher, back toward the March 6th highs.

The Federal Reserve has added several trillion dollars to its balance sheet while the US Treasury and large corporations have issued trillions in new debt in just the past quarter (source Bloomberg). Whether bought by the Federal Reserve or by other investors, bonds and their prices are ever closer to their March 6th level.

In my letters since March 6th I have stressed the lack of value in bonds. With the ten-year US Treasury note yielding .50% as I write this letter and spreads on other types of bonds at historically low levels, prices are high and risk be damned. It is bond nirvana!

If bonds, governed my bond math and tethered to a certain maturity date, are priced to near-perfection, then stocks, without such tether, and with hope for the future must be downright unbelievably priced. Yes, that would be my opinion.

But again, the race is not over, the finish line is not in sight. Time is marching on and you need to begin to make tough decisions.

Interest rates will not remain lower for longer or even lower forever as some (many?) seem to believe. Why would investors leave 20%, 30%, 40% or even 50% of their investments in fixed income bond funds when they figure out such an allocation may be dead money? Why wouldn’t they sell, as they did in early March, causing bond fund prices to decline 5%, 10%, 15% or even more? Are they going to warn you next time like they did last time? No, fixed income bond funds and investors who own bond market products need to move on.

Just remember, the exit door is not any bigger than it was in March, so the best time to leave is now, while you can.

It has been a good run for financial assets. The thirty year bull market for stocks and bonds has been stretched now to nearly forty years. All this performance is now in the past. Now at historically low interest rates together with historically low spreads, the record/near record bond prices are not sustainable. As investors determine the bond math means no returns and perhaps negative returns, they will hit the exit. A repeat of March? I believe so.

Fort Bend Independent School District TX

General Obligation Series 2020A

AAA S&P (PSF – Guaranteed) AA S&P Underlying

Due 8/15 Dated 9/1/20 Maturity 8/15/50

1            2021           4.00%           0.11%

 2            2022          4.00%           0.15%

 3            2023          4.00%           0.17%

 4            2024          4.00%           0.21%

 5            2025          4.00%           0.29%

 6            2026          5.00%           0.40%

 7            2027          5.00%           0.51%

 8            2028          5.00%           0.64%

 9            2029          5.00%           0.72%

 10          2030**      5.00%           0.80%

 11          2031**      5.00%           0.86%

 12          2032**      5.00%           0.92%

 13          2033**      5.00%           1.00%

 14          2034**      4.00%           1.16%

 15          2035**      4.00%           1.21%

 16          2036**      3.00%           1.43%

 17          2037**      3.00%           1.47%

 18          2038**      2.00%           1.84%

 19          2039**      2.00%           1.89%

 20          2040**      2.00%           1.93%

 21          2041**      2.00%           1.97%

 22          2042**      2.00%           2.00%

 25          2045**      4.00%           1.56%

 30          2050**      4.00%           1.66%

* Yield to Worst (Call or Maturity) ** Call 8/15/29

Source: Bloomberg

This is an example of a new issue priced the week of 8/3/20

Prices, yield and availability subject to change