(New York)

Want to know an asset class that has better risk-adjusted returns than equities over the decades and still has quite good liquidity? Look no further than external sovereign bonds, or the bonds issued in foreign currencies, like the Republic of Argentina 7.5% bond maturing in 2026. The bonds also have a low correlation to stocks, which means having both of them in the portfolio overall should produce lower volatility. The asset class has flown largely unnoticed because of a lack of a benchmark or return history (until now) and the fact that there have been a handful of notable sovereign crises in recent years.

FINSUM: A lot of people shy away from this asset class, but it definitely has a place in the portfolio. The lack of correlation and the good risk-adjusted returns make it attractive.

(Los Angeles)

Love Tesla cars but scared of their company’s cash burn and Elon Musk-related antics? There is a way to invest in the company without buying the stock. Tesla has issued automobile asset-backed securities, or bonds with coupon payments backed by lease payments from Tesla customers. Last year, the carmaker sold $1.5bn of such bonds, which are not backed by the company’s cash flow, but directly by lessee’s payments. One portfolio manager put it this way, “Oftentimes, investors get Tesla the company and Tesla the car confused, but in this case, you really get to separate the two out”. The bonds issued have various tranches divided up by credit quality.

FINSUM: This seems like a smart way to invest in Tesla without all the volatility related to Elon Musk and the company’s cash flow struggles.

(New York)

One of the old adages of the market is to “sell in May and go away”, or get out of stocks in the summer and come back in the fall when everyone gets back to work. That axiom holds water when you look over many decades, but its record in recent years has been spotty, with summer returns over the last five years being quite solid (though still less than November-April). Over the last five years, the average return from May-October has been 4.31% while in November-April is has been 5.53%.

FINSUM: Anyone’s guess what will happen this year, but the last few summers have been more positive. 5 years is a pretty short sample size though.

(Washington)

Don’t look know, but market could be facing a big risk in September. Investors will remember that Congress voted to suspend the debt limit until March 1st. That date has come and passed and now the Treasury is using extraordinary measures to meet the US’ payment obligations. However, it says it will exhaust those options by September, meaning the US could end up in a major cash crunch.

FINSUM: Get ready for another early autumn political crisis over the budget, deficit, and debt ceiling.

(New York)

The markets are gleeful right now. Stocks are up 25% since their bottom in December, and things on the economic and Fed fronts look rosy. However, Citi says investors need to get out of some assets before “rain spoils the picnic”. The bank is worried about the difference between asset prices and underlying economic conditions (when looking globally). Its biggest area of worry is in corporate bonds, which have seen spreads to investment grade narrow sharply, especially in high yields, which look overvalued. Investment grade debt is troubling too, as debt levels jumped by their biggest amount in 18 years over the last 4 months. Citi thinks companies are burning through way too much cash for the growth levels they are achieving.

FINSUM: So Citi thinks this is going to be a bond market reckoning (which would surely impact stocks too). That is different than the consensus, but perhaps a good way to view the situation.