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“Teflon” Bonds—The Donald Trump Of Investments
by Chun Wang of The Leuthold Group,
Bonds are the Donald Trump of the investment world. Most people hate them but they keep going up. Throw anything at them, these “Teflon” bonds can shake it all off. QEs or Fed hikes, risk-on or risk-off, $100 oil or $30 oil, strong dollar or weak dollar, you name it. The multi-decade march toward ever-lower yields seems unstoppable, not even by the zero line these days, and there is little sign a change in the trend is imminent.
Brexit & Bonds
by Anthony Valeri of LPL Financial,
High-quality bond strength following the Brexit vote is likely to persist if history is any guide. Flight-to-safety buying, which is typical in response to market or geopolitical shocks, propelled Treasuries to strong gains in response to voters in the United Kingdom (U.K.) deciding to leave the European Union (EU).
Britons Vote in Favor of Brexit
by Ben Rozin of Manning & Napier,
Recently, citizens of the United Kingdom (UK) collectively voted in favor of leaving the European Union (EU). Now begins the process of negotiating a withdrawal accord and the terms of the UK’s relationship with the political-economic bloc, including 80,000 pages of EU trade agreements. This will likely take a minimum of two years, but the exact timing ultimately depends on how the negotiations play out. During this time, Britain will continue to abide by EU treaties and laws, but will not take part in any decision-making on behalf of the union. We outline what it means from an investment perspective, short-term, and what we can expect to see in the future.
Take a Breath
by Jeffrey Saut of Raymond James,
Rudyard Kipling was one of the most popular writers in the United Kingdom in the late 19th and early 20th centuries. Accordingly, today’s quote from him seems appropriate given the U.K.’s vote to secede from the European Union (EU) accompanied by the trouncing of the world’s equity markets Friday morning. That market action brought about instant comments from Wall Street’s gurus about the winners and losers from said vote, as well as instant opinions as to what it all means. I find such a “rush to inform” to be disingenuous and advised folks to sit back and take a breath (a deep breath).
Anarchy in the U.K. / I'm So Bored with the U.S.A.
by Scott Brown of Raymond James,
Caught leaning the wrong way, the financial markets were hit hard by the outcome of the U.K.’s referendum on EU membership. However, the decision to leave the European Union is not a Lehman-type event. A full-blown panic is unlikely and we should see the U.S. market settle down early this week. The outlook for the U.K. economy is not good. Meanwhile, back at home, investors will look to the calendar and collectively yawn.
A Classic Case of Failed Socialism: What’s Next After the Brexit?
Defying sentiment polls leading up to yesterday’s historic Brexit referendum, British voters said “thanks, but no thanks” to excessive EU taxation and regulation, choosing to take back Britain’s sovereignty in financing, budgeting, immigration policy and other areas essential to a nation’s self-identity. It was a momentous victory for the “leave” camp, led by former London mayor Boris Johnson and U.K. Independence Party leader Nigel Farage, who invoked the 1990s sci-fi action film “Independence Day” by declaring June 23 “our independence day” from foreign rule.
Global Bonds: A World Without Yield
by Kathy Jones of Charles Schwab,
The plunge in global bond yields intensified during the past month. While short-term interest rates have been less than zero in some markets for quite some time, longer-term bond yields have recently fallen back to the zero level. Ten-year Japanese government bond yields are already in negative territory, with major European yields nearing the zero mark. Overall, record-low yields have been reached in Japan, Germany and the U.K., and Fitch Ratings estimates that more than $10 trillion in government bonds now have negative yields.
Municipals Buck the Seasonal Trend
by Anthony Valeri of LPL Financial,
Municipal bonds have thus far bucked the trend of typical headwinds in June. The Barclays Municipal Bond Index has returned 1.1% month to date through June 17, 2016, a stark contrast to the -0.55% total return the Barclays Municipal Bond Index has averaged in June over the past 10 years. The index has posted positive returns only three times over that time span—a remarkably poor batting average for any interest bearing sector—illustrating the consistency of June challenges until this year.
Overcoming A Wall Of Worries
by Burt White of LPL Financial,
With weaker than expected jobs growth in May, the Federal Reserve’s (Fed) recent disappointing economic forecast, negative interest rates around the globe, and the Brexit, the list of worries for investors continues to pile up. The U.S. economic recovery will turn seven at the end of this month, but very few realize that or feel like it has helped them. In the face of all the bad news, the S&P 500 is still only 2.8% away from a new all-time high. So maybe things aren’t so bad?
Why Gold, Why Now?
During my most recent webcast a couple of weeks ago, I had the pleasure of being joined by the CEO of the World Gold Council (WGC), Aram Shishmanian. As expected of someone of his stature, Aram brought another level of insight and expertise to our discussion of gold’s Love Trade and Fear Trade.
The Shrinking Cost of Carry in Currency Hedging
by Chin Ping Chia of MSCI,
The cost of hedging exposure to foreign currencies is coming down for some investors. That's the takeaway from Chin Ping Chia, MSCI's head of research for Asia Pacific, who explains in his latest post that hedging can help investors avoid losing money amid swings in the foreign-exchange market but can be an expensive strategy for investors based in countries with structurally low interest rates.
Retirement Planning and the Impact of Investment Market Performance
by Joe Tomlinson,
The major challenge in building a sustainable retirement plan is the combination of low interest rates and stock market risk. Amplifying this challenge is the prospect of lower future equity returns and uncertainty about equity risk premium. Researchers have developed a number of different retirement withdrawal strategies to help manage investment risks; however, such strategies have not been adequately stress tested. I’ll compare strategies under stress to determine which strategies will be the most resilient.
Imagine
by John Hussman of Hussman Funds,
Imagine the collapse of an extended speculative tech bubble, resulting in a broad economic recession. Imagine if the Federal Reserve had persistently slashed short-term interest rates during the downturn, to no avail, leaving rates at just 1% by the time the S&P 500 had lost half of its value and the Nasdaq 100 collapsed by 83%. Imagine that the Fed kept rates suppressed, in the initially well-meaning hope of encouraging lending, growth and employment. Imagine that the depressed level of interest rates made investors feel starved for yield, and drove them to look for safe alternatives to Treasury bills.
Breaking Bad
by Scott Brown of Raymond James,
On June 23, the United Kingdom will vote on whether to remain in the European Union. The vast majority of economists are projecting dire consequences for the U.K. economy if voters decide to leave, with some likely spillover to the rest of the world. Until a few weeks ago, polls had pointed to an easy victory for the “remain” campaign. However, many polls now show the “leave” side ahead. Polls are widely regarded as unreliable, following the inaccuracies ahead of last year’s general election. Betting odds (to date) still favor “remain,” but it may be a photo finish.
Eurozone Secular Outlook: Europe’s Fragile Environment Spells Caution for Investors
by Nicola Mai of PIMCO,
With our baseline view of 2%–3% nominal growth over the next three to five years, Europe’s economic, fiscal, social and political environment will remain fragile. Investors should be cautious.
What Brexit Is All About: Taxation Without Representation
I want to continue the Brexit conversation from last week. With only six days left before U.K. voters head to the polls, expectations of which side might win are beginning to shift toward the “Brexiteers,” while betting markets are still putting money on the “stay” campaign. However, the probability of victory for those who favor keeping their European Union membership has weakened rather remarkably in the last month, falling from over 80 percent in mid-May to around 62 percent today, according to BCA Research.
Global Economic Perspective: June
Our view is that the US economy remains on course to pick up over the rest of this year, despite May’s disappointing payroll report, which helped persuade the US Federal Reserve (Fed) to hold back temporarily from raising rates at its June meeting. We do not place too much importance on this single piece of data and believe the economy’s robust fundamentals are likely to fulfill the Fed’s criteria for tightening monetary policy fairly soon.
Our Five Year Forecast for the S&P 500 (SPY), S&P 400 (MDY), and S&P 600 (IJR)
by Kendall Anderson of Anderson Griggs,
Long-term forecasting is more of an art than a science. As none of us can tell the future, we should probably all put our skeptics’ hats on and view any and all forecasts as educated guesses. However, the fact that the future is unknown does not allow us as investors to abstain completely from the process of forecasting.
All Eyes Have Turned to Britain…
by Blaine Rollins of 361 Capital,
With the Fed taking a backseat in June, all investing eyeballs have turned toward the Brexit vote in two weeks. While a decision to leave still looks like a stretch in the investing and betting marketplaces, some more recent online and phone surveys have caused spilled pints for anyone long the British Pound. The Brexit uncertainty has also increased the volatility in other related currency, equity and even commodity markets.
June Market Outlook Update
by Jim McDonald of Northern Trust,
It appears that, once again, the Federal Reserve’s hopes to raise interest rates are being stymied by the economy. Just last month the Fed’s minutes showed a predisposition to raise rates soon, and Chair Janet Yellen said it would probably raise rates “in coming months” should the data continue to meet expectations.
The Intermediate Outlook Is Brighter Than the Near-Term
Equity markets were mixed last week, rising in the first half of the week before
declining. Signs of stabilization in China and a lower likelihood of near-term
Federal Reserve tightening helped markets, while economic growth worries,
the upcoming referendum in England to determine whether to remain a part
of the European Union (the “Brexit” vote) and falling bond yields weighed on
stocks. For the week, the S&P 500 Index declined a modest 0.1%.
The Good, Bad & Ugly
by Axel Merk of Merk Investments,
Are we better off with "QE", the ultra-accommodative monetary policy pursued by major central banks around the world? Is it "mission accomplished" or are we facing a "ticking time bomb"? Are extreme characterizations even warranted to describe the unconventional monetary policy of recent years, and what are implications for investors?
The Death of the Virtuous Cycle
by Michael Lebowitz,
The elegant virtuous cycle that propelled Western economies to prosperity has been quietly dismantled and replaced with an unproductive imitation. This new, un-virtuous cycle euthanizes discipline and prudence in exchange for the immediate gratification of debt-fueled consumption.
On My Radar: “Float Like a Butterfly, Sting Like a Bee”
Our team spends a great deal of time debating the economic outlook and to say PJ Grzywacz is bright would be an understatement. Sometimes our discussions get passionate and I think it is a good thing. To wit, passion in everything is a good thing. PJ challenges all things that might lead to “groupthink” biases. Something we think about a lot.
Like Water Out of a Sponge
by John Hussman of Hussman Funds,
Last week, the 10-year Treasury yield dropped to just 1.6%. Technician Walter Murphy noted that his index of global 10-year yields also plunged to an all-time low. The overall structure of global bond yields is undoubtedly the outcome of years of aggressive monetary easing, though the break to fresh lows among European bank stocks may convey some additional information content. Of course, the compression of prospective investment returns isn’t limited to bonds. On the basis of the valuation measures best correlated with actual subsequent S&P 500 total returns across history, prospective 10-12 year S&P 500 nominal total returns have declined to just 0-2% by our estimates, with negative real expected returns on both horizons.
Smart Money Positioning is Supportive of Bonds
by Bryce Coward of GaveKal Capital,
This may come as a shock with 10-year rates near multi-year lows this morning , but the “smart money” commercial traders are positioned for a further decline in rates. In the chart below we show the net number of options and futures contracts held by commercial traders (blue line, right axis) – who are termed the “smart money” because they happen to be right more often than not especially at important turning points – overlaid on the 10-year treasury bond yield.
Are We Nearing the End of the EU Experiment?
If you’re a serious investor—and because you’re reading this, I have to assume that you are—gold is looking more and more like a crucial trade. Only two weeks remain before United Kingdom voters decide on whether the country will continue to be a member of the European Union (EU) or become the first-ever to leave it. The “Brexit,” as it’s come to be known, is arguably the most consequential political event of 2016—perhaps even more so than the U.S. presidential election in November—with far-reaching implications.
Schwab Market Perspective: Summer of Discontent?
As amusement park visits rise in the summer months, the ever-popular roller coaster analogy seems appropriate for the stock market. Since the beginning of 2015, stocks have had some fairly major ups and downs, but we now sit about where we began. Unfortunately, it’s not as easy for investors to get off the ride, and we expect the frustrating, grinding environment to continue for the near future. Equities have yet been unable to break through to new highs, while fixed income continues to offer little in terms of yield.
Split Second Timing
This weekend, my son and I had an opportunity to enjoy the Dairyland Classic at Road America, a spectacle of motorcycle racing at one of the best road courses in the United States. One of the things you learn if you follow these racers, who travel at speeds up to 180 mph around the 4 mile track, is that every move they make, each second, has a meaningful impact on the outcome of their race. One bit of hesitation, turning a few feet too early or late, and the racer’s place is at stake. It is safe to say that the Federal Reserve has a lot more time to determine their next move than these motorcycle racers.
ECB Corporate Purchase Program
by Anthony Valeri of LPL Financial,
The European Central Bank's (ECB) Corporate Securities Purchase Program (CSPP) is set to begin on June 8. This program was initially announced in March, and brings corporate bonds into the European quantitative easing (QE) program, in an attempt to lower debt costs broadly. Though the first purchases are yet to be made, European corporate yields have fallen significantly, showing that the market has priced in its impact, making further broad gains less likely. Still, the low-yield environment is likely to push foreign cash toward the relatively higher yields in U.S. markets, potentially keeping a lid on U.S. Treasury and corporate yields as well.
Reserve Bank of India - Second Bi-Monthly Monetary Policy Review
The Reserve Bank of India quite expectedly kept the key policy rates unchanged at 6.5 percent, in its second bi-monthly monetary policy review. In its bi-monthly monetary policy statement of April 2016, the RBI had stated that it would watch macroeconomic and financial developments in the months ahead with a view to responding as space opens up.
Results 8,551–8,600
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