Displaying items by tag: crisis

Over the past two weeks, Treasuries have been considered a safe haven for investors amid the current turmoil in the banking system. While Monday offered a quick respite as investors learned of the news that UBS is rescuing Credit Suisse in a $3.24 billion deal, yields are expected to move lower in the days and weeks ahead if the turmoil continues. Kelsey Berro, a portfolio manager in J.P. Morgan Asset Management’s global fixed-income group told Barron’s that “The direction for Treasury yields should be lower." She added that “This month’s bank-related volatility shows that high-quality bonds are working as a portfolio diversifier this year.” Rick Bensignor, managing partner of Bensignor Investment Strategies concurs. He told Barron’s that he thinks Treasury prices will go higher, pushing yields lower. He says that he “Can see the 10-year Treasury’s yield falling to 3.2% or even 3.1%, compared with 3.48% on Monday afternoon.” Bensignor expects that “There will be more banks that are going to let us know how much trouble they are in. It’s going to force people into the safety of the bond market.”

Finsum:While Monday offered a brief respite, treasuries yields are expected to move lower if the upheaval in the banking system continues, according to bond strategists.

In an interview with Russ Alan Prince in Financial Advisor Magazine, Jeffrey Schwaber, Chief Executive Officer of Bluerock Capital Markets, stated that he believes real estate is well-positioned to outperform in 2023. He noted that while some economic indicators are pointing towards a possible recession this year, “real estate market fundamentals remain very healthy.” He referenced the difference in real estate during the Financial Crisis and now. For instance, the three key factors that negatively impacted real estate during the financial crisis, supply, leverage, and jobs, are all now healthy. Real estate supply as a percentage of total inventory is the lowest it has been in the "trailing 10-year period compared to previous periods and is forecasted to remain at lower levels." The use of leverage since the Financial Crisis has been the lowest of any “real estate/economic recovery” in the last forty years. As for jobs, the unemployment rate was 3.7% as of November, close to the lowest level in 10 years. In terms of where to invest, Schwaber is bullish on the industrial, life science, and single-family residential sectors. The growth of online retail is driving demand for warehouse and distribution centers on the industrial side. Life science real estate offers an attractive opportunity due to significant growth in biotech research, and the significant undersupply of apartments and single-family rentals is fueling the residential housing market.

Finsum:Due to healthy fundamentals, Jeffrey Schwaber, Chief Executive Officer of Bluerock Capital Markets, believes real estate will outperform this year in the industrial, life science, and single-family residential sectors.

(New York)

You may not know the name Michael Burry off hand, but you probably should. He was one of the investors who made a fortune as part of the “big short” during the Financial Crisis. Well, he has come back into the limelight this week with an eye-opening warning. He argues that ETFs, and indexing generally, are essentially the same as CDOs were before the crisis. He explains that the massive capital inflows into ETFs have eliminated any realistic pricing mechanism for underlying stocks, just like huge demand for structured credit inflated all asset prices before 2008. Additionally, the daily liquidity underlying many of the stocks in index funds is vastly lower than the index funds themselves (again, just like CDOs). Burry uses a theater metaphor, saying that the theater has grown much more crowded, but the exits are still the same size.

FINSUM: This is a great argument, and one that seems to have fundamental truth to it. However, even Burry admits that he has no idea when this “bubble” might actually burst.

(New York)

For many years after the Crisis, the main theme around consumer debt was the idea that Americans were deleveraging. However, steadily, consumer debt has risen back to alarming levels. In the first quarter of this year, consumer debt hit $14 tn, surpassing the $13 tn of leverage pre-Crisis. Student debt has been a major area of credit expansion. Even when comparing debt to the population, the debt per person is a little higher than in 2008.

FINSUM: So obviously inflation needs to be accounted for here, but the picture is still worrying. It is yet another sign that we may be nearing the end of this run.

(New York)

Many advisors may respect the opinion of Bob Rodriguez. The former fund manager achieved some acclaim by accurately forecasting the Dotcom bust and Financial Crisis. The former CEO of First Pacific Advisors says that a financial crisis is now a “near certainty”. His fear is that excess leverage in the economy, coupled with a recession, will cause a big crisis. He believes “delusional” equity markets are now only starting to recognize this reality.

FINSUM: The preconditions for a crisis are there—a big buildup in corporate debt and pending recession. However, the timing and magnitude are both big question marks.