Tag Archives: Bonds

2022: The Year that Imploded … Bigly, by David Haggith

Posted on December 22, 2022 | Leave a comment

2022 was not kind to most asset prices. From David Haggith at thegreatrecession.info:

2022: The Year that Imploded … Bigly

Falling housing prices may cause Housing Market Crash 2.0.

This was the year where it seemed everything imploded. For the economy, it started with two quarters of receding GDP that everyone refused to call a recession. Whether you stand with the crowd on that or not, it was certainly not a good change and was certainly a collapse of the economy toward a smaller state based on production. But that was just where it all began. What follows is an amazing overview of a world in a state of collapse.

The stock market’s north-pole polar-bear plunge

Right from the start, 2022 became the year the stock market imploded with all major indices down and down … and down some more all year long. So far, this is the year Santa’s sleigh didn’t soar into some kind of end-of year rally. Instead, the Grinch stole the sleigh and just went down the hills and through the snow like sleds are supposed to go.

The Grinchy Dow started bounding down the mountainside at the top of year in an endless series of leaps off bluffs and is currently down 11% for the year. At its lowest point of the year, it fell 22% into a full bear market that it remains mired in.

The S&P also started going downhill at the top of the year; but it ran down in front of the Grinch like his dog, trying to keep the Dow from hitting him in the butt, to where the S&P is currently down 20% from its all-time high. At its lowest point it fell 25% from its peak.

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Posted in Currencies, Debt, Economics, Economy, Energy, Financial markets, Governments, History

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Why Bonds Are Behaving Like Risky Assets, by MN Gordon

Posted on September 30, 2022 | Leave a comment

Bonds are always risky assets. People just forget that after an almost 40-year bull market. From MN Gordon at economicprism.com:

“When the [credit] delusion breaks, people all with one impulse hoard their money, banks all with one impulse hoard credit, and debt becomes debt again, as it always was.  Credit is ruined.”

– Garet Garrett, 1932, A Bubble that Broke the World

Down, Down, Down

Third quarter 2022 ends today [Friday].  We’re entering the year’s home stretch.  Thus, we’ll take a moment to observe where money and markets have been, so we can conjecture as to where they’re going.

To begin, United States stock markets are in an epic battle between bulls and bears.  For most of the year, the bears have been delivering heavy blows.  But the bulls have not taken their punches lying down.  Here’s a quick review of the three major U.S. Indexes…

After peaking out on January 4, 2022, at 4,814.62 the S&P 500 declined 24.46 percent to an interim bottom of 3,636.87 on June 17, 2022.  The DJIA fell approximately 19.71 percent over this time.

The NASDAQ’s decline commenced on November 22, 2021, at a peak of 16,212.23.  It then cascaded to an interim bottom of 10,565.14 on June 16, 2022, for a top to bottom decline of 34.83 percent.

The indexes then rallied into mid-August.  Many investors thought the bear market was over.  They invested accordingly.  But, alas, it was merely a sucker’s rally.  September was ugly.

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The Bear-Market Rally in Stocks, Bonds, Mortgages Wiped Out: Why This Nails the Parallel to the Dotcom Bust, by Wolf Richter

Posted on September 26, 2022 | Leave a comment

This is a debt contraction, and when debt contracts, assets prices go down. From Wolf Richter at wolfstreet.com:

But this time, there’s over 8% inflation.

The Dow Jones Industrial Average on Friday closed about 300 points below its June 16 low, thereby having more than wiped out the bear-market rally gains. For the Dow, the bear-market rally started on June 17 and ended on August 16. During the two-month rally, the Dow had jumped 14%. By Friday at the close, it was again down 20% from its all-time high.

The S&P 500 Index, on Friday intraday, fell through its closing low of June 16 – the infamous 3,666 – and then bounced a little to close 27 points above the June 16 low, at 3,693. During the two-month bear-market rally through August 16, the index had surged 17%. By Friday, the index was down 23% from its all-time high.

The Nasdaq closed about 2% above its June low. During the two-month rally, it had soared by 23%. Many of my Imploded Stocks that are now trading for a few bucks, had shot up by 50% or more, and a bunch of them doubled, before re-imploding after mid-August.

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If you are looking for truth in markets, in bonds there are fewer lies. By Bill Blaine

Posted on February 7, 2022 | Leave a comment

The bond market has often been a canary in the coal mine for stocks, and it may well happen again. From Bill Blaine at morningporridge.com:

“Believe whatever you want about equities, but in bonds there is truth..”

This morning – The Stock Market Rollercoaster will continue a while longer, but a decisive divergence point is coming! Corporate debt is likely to crack on rising rates, price distortion, forgotten risk metrics, and rising defaults. It will signal the perilous financial health of some sectors – bursting the current bubble violently. Anyone for the last few choc-ices?

But first: a rumbustious Saturday evening in Dubai followed the Calcutta Cup Rugby Match between Scotland and England. I make that 2.5 in a row to Scotland – (I’m counting Scotland reversing a 40 point first-half deficit into second-half draw in 2019 as a win!). Interesting..  my nation of 5 million Scrappy Socialists with our paranoid fascination for blue face paint, blue flags, bagpipes and sharp pointy things, consistently thumps 60mm Englishmen who voted for Boris.

Is there a lesson in there somewhere…?

Meanwhile, back to the Unreal World, let me introduce you to a new Blain’s market mantra:  If you are looking for truth in markets, in bonds there are fewer lies.

Aren’t we having fun in the equity market. Up, Down, Shake it all about. Amazon down 15% one day and up 13% the next. Facebook among the most volatile stocks on the block. Around the globe investors wake up wondering if it’s a risk on or off day, wholly uncertain what they believe about equity market uncertainty… The question is why…?

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Treasury Yields & Mortgage Rates Spike: Markets Begin to Grapple with Quantitative Tightening, by Wolf Richter

Posted on January 9, 2022 | Leave a comment

Unless we get massive deflation in a hurry (unlikely) bonds may be the single worst investment out there. From Wolf Richter at wolfstreet.com:

The two-year Treasury yield started rising in late September, from about 0.23%, and ended the year at 0.73%. In the five trading days since then, it jumped to 0.87%, the highest since February 28, 2020. Most of the jump occurred on Wednesday and Thursday, triggered by the hawkish Fed minutes on Wednesday.

Markets are finally and in baby steps starting to take the Fed seriously. And the most reckless Fed ever – it’s still printing money hand-over-fist and repressing short-term interest rates to near 0%, despite the worst inflation in 40 years – is finally and in baby steps, after some kind of come-to-Jesus moment late last year, starting to take inflation seriously. Treasury yields are now responding:

Jawboning about Quantitative Tightening.

Even though the Fed hasn’t actually done any hawkish thing, and is still printing money and repressing interest rates to near 0%, it is laying the groundwork with innumerable warnings all over the place, from the FOMC post-meeting presser on December 15, when Powell said everything would move faster, to hawkish speeches by Fed governors, to the very hawkish minutes of the FOMC meeting, which put Quantitative Tightening in black-and-white.

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Will Risk Parity Blow Up…??? by Harris “Kuppy” Kupperman

Posted on October 11, 2021 | Leave a comment

You own bonds to offset the risks of stocks and vice versa, but what happens when they both go down in extended bear markets? From Harris “Kuppy” Kupperman at wolfstreet.com:

When something that is this widely adopted blows up, it tends to blow up spectacularly.

By Harris “Kuppy” Kupperman, founder of Praetorian Capital, Adventures in Capitalism:

For four decades, the US stock market has traded up and to the right. During those brief moments of setback, treasuries rallied strongly. The fact that these two asset classes seemed to offset each other, creating a smoothed-out return profile, was not lost on certain fund managers who created portfolios comprised of the two. Then, to better market this portfolio to the sorts of institutional investors who cannot bear drawdowns, the overriding strategy was given the pseudo-intellectual sounding Risk Parity moniker.

Over time, the reliability of Risk Parity funds has astonished most observers, especially after being tested by fire during the GFC. As a result, portfolio managers took the logical next step and added copious leverage—because in finance, when you do a back-test, every return stream works better with leverage.

Naturally, as Risk Parity continued to produce returns, inflows bloated these funds. Risk Parity strategies, in one form or another, now dominate many institutional asset allocations. While everyone makes their sausage a bit differently, trillions in notional value are now managed using this strategy—long equities, long treasuries. Are they highly-leveraged time-bombs??

Taking a step back, it’s important to ask, what created this smooth stream of Risk Parity returns? Was it investor brilliance or was it a four-decade period of declining interest rates that systematically increased equity market multiples while reducing bond yields? What if all the sausage-making was just noise?

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A Reckoning of Economic Excess, by Bill Bonner

Posted on September 23, 2021 | Leave a comment

An inflationary rescue by the world’s central banks will not prevent the financial asset and economic meltdown that’s coming. From Bill Bonner at rogueeconomics.com:

He who takes what isn’t his’n
Pays it back or goes to prison

– 19th century American businessman Daniel Drew

BALTIMORE, MARYLAND – What we were looking for in the Evergrande story was a hint… a clue… an advance warning of things to come.

What happens when you can’t pay your debts? How does it end?

With a bang of inflation? Or a whimper of deflation?

Our prediction: Both.

Every bubble blows up. Every excess has to be resolved. And every debt gets settled – one way or another.

Typically, a bubble brings on a case of “irrational exuberance.”

The irrationally exuberant investor pays too much for his assets. The irrationally exuberant businessman stretches too far… borrows too much… and over-extends himself. The irrationally exuberant empire invades Afghanistan.

But no one and nothing is ever evergrande, of course. It is only occasionally grand.

And when the occasion passes… so does the grandeur.

Too Much Excess

“And then what?” is our question today.

We have the answer, too: the end of the world as we have known it.

An excess of private investment usually produces an excess of capacity… and excess output. Too much, in other words.

Then, when the Bubble Epoch passes… the excess is usually reckoned with in a DEFLATION. Prices fall… until demand picks up enough to clear the market.

The investors and producers, who misjudged the situation, and their suppliers and employees, suffer the losses.

That’s what happened in America after the crash of 1929.

Private industry had expanded in the Roaring Twenties… By the 1930s, it produced far more autos and electrical appliances than the market could absorb.

Prices – for stocks, as well as consumer items – collapsed. The price of milk, for example, fell so low that dairy farmers dumped it on the ground rather than sell it.

Stock prices dropped for nearly three years, from 377 Dow points in October, 1929, to only 44 in July of 1932.

Then, it took 25 more years, a Great Depression, and World War II for prices to recover.

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Why I No Longer Invest In Stocks And Bonds, by Paul Rosenberg

Posted on August 13, 2021 | 1 comment

Paul Rosenberg’s reasons for not investing do not include that stocks and bonds are at absurd valuation levels, particularly bonds. However, that’s not to say his reasons don’t make sense, they do. From Rosenberg at freemansperspective.com:

I’ve touched upon this subject in my subscription newsletter, but I had no plans to write anything more until I got a note from a friend, mentioning a particular investment analyst and his views on investing over the next few years. I had to agree that it was brilliant analysis, but at the same time I knew that I’d never do anything about it, because I simply can’t bring myself to put money into “the markets” anymore.

As a young man I spent time learning the nuts and bolts of investing: Price to earning ratios, book values, charting, puts, calls, covered positions, and so on. And when I had extra money, I tended to put it into the markets and use my tools. But I can no longer do that, and I think explaining why may be useful.

There are three reasons for this conviction of mine, and so I’ll list them below. But I’m listing them in reverse order, because reason number one stands above the others: By itself it would prevent me from investing in the usual way. I think all three reasons are strong, but reason number one is pivotal.

Reason #3

Reason number three is simply that the markets no longer make sense. In fact, I’ve now taken to calling them “exchanges,” not wishing to denigrate the concept of markets.

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Billionaire hedge fund manager urges diversification out of the dollar, by Simon Black

Posted on March 30, 2021 | Leave a comment

Why would you want to stay in a currency its sponsors are hell-bent on debasing? From Simon Black at sovereignman.com:

Ray Dalio is the founder of one of the largest investment firms in the world and has amassed a personal fortune nearing $20 billion from his business and investment acumen.

In short, he understands money and finance in way that most people never will. And it’s for this reason that his latest insights are so noteworthy.

In a recent, self-published article entitled “Why in the World Would You Own Bonds When. . .”, Dalio makes some blunt assertions about the alarming US national debt, the decline of the dollar, and other negative trends in the Land of the Free.

Here’s a summary of the major points:

1) Interest rates are now so low that “investing in bonds (and most financial assets) has become stupid.”

Dalio points out that bond yields are so low today that investors would essentially have to wait more than 500 years to break even on their bond investments after adjusting for inflation.

That’s why sensible people are already ditching the bond market.

JP Morgan’s CEO Jamie Dimon recently said he wouldn’t touch a US government 10-year Treasury Note “with a ten foot pole.” Neither would Dalio, as he told Bloomberg this month.

2) This is a big problem for Uncle Sam. Investors are ditching US government bonds at a time when the US is “overspending and overborrowing”.

They just passed a $1.9 trillion stimulus, and they have another $3 trillion spending package ready to go, plus plenty of momentum for Universal Basic Income, health care, Green New Deal, and just about everything else.

In short, the government is going to have to sell a LOT of bonds (i.e. increase the debt) at a time when investing in bonds has become stupid.

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Getting Out Before the Crash… 5 Secrets to Spot Market Tops, by Doug Casey

Posted on December 30, 2020 | Leave a comment

It all seems so easy, just buy low and sell high (or sell high and buy low). So how come so many people do the exact opposite? From doug Casey at internationalman.com:

market tops
 
International Man: Markets have extreme emotions. They can go from irrational exuberance—where it seems everyone is swinging from the chandeliers—to a bottom-of-the-barrel bear market where people don’t even want to look at the business section.

Why is assessing the psychology of the market so important?

Doug Casey: The market, as Warren Buffett has pointed out, can be either a weighing machine or a voting machine. You can make money in the market either way, but you have to recognize which machine is giving you signals.

Although Mr. Market sees and knows almost everything, he pays the most attention to the voting machine, because he’s basically bipolar, a manic-depressive. As a result, not only do you have to deal with the psychological aberrations of millions of other people who are running in a crowd and voting with their dollars, but much more important, you have to deal with your own psychology. You are, after all, part of the market.

The only thing you can control, however, is your own psychology, not that of the market’s other participants. Once again quoting Buffett, “Be fearful when others are greedy. Be greedy when others are fearful.”

It’s a matter of having good psychological judgment. Everybody wants to be a contrarian, and perhaps they think they are a contrarian. But, in reality, it’s hard to be a contrarian.

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