(New York)

After what was a great run for much of this year, ETFs investors are fleeing bonds. After yields fell sharply for most of 2019, investors have been stung this month as yields have shot higher. Ten-year Treasuries have gone from 1.7% to 1.9% yields, causing over half of all bonds to lose value. Investors have been pulling billions out of funds as a result. The iShares 20-year Treasury ETF has lost 7.8% since August 28th. One of the areas that has been more durable is high yield, where average prices have risen a little over 1% in the same time frame.

FINSUM: Bonds losing is a sign that investors are getting less worried about a recession, which in our view is an optimistic sign.

(New York)

Hedge fund icon Ray Dalio delivered a grim speech yesterday at a gala dinner for the National Committee on US-China Relations. The investor is worried about war in all it forms. He said that “There is a trade war, there is a technology war, there is a geopolitical war, and there could be a capital war”. Famed former US Secretary of State Henry Kissinger also spoke at the event and told both sides that they must avoid a shooting war at all costs, as no side can win.

FINSUM: Everyone on both sides will hopefully be somewhat relieved if a “phase one” trade deal can be reached.

(Washington)

Whether or not you are a supporter of Elizabeth Warren and her aggressive tax plans, one has to worry about the recent arithmetic that is coming out of her campaign. In particular, what is emerging is that many wealthy Americans would have tax rates over 100%. In many cases they would be as high as 158%. The reason why is a combination of the tax rates Warren favors, but critically, also her goal to tax unrealized gains. That means taxes would need to be paid in cash on investments that have not realized cash gains.

FINSUM: In our view, this is little more than divisive and punitive, not to mention rife with bad logic that will create unintended consequences. We are not in principle against the idea of some moderate level of redistribution to help strengthen the country and economy, but this is highly unfair.

(Washington)

It has an air of inevitability now that it has happened. President Trump has requested the Supreme Court to block a subpoena that is seeking to obtain his tax returns. The effort is coming from New York, which previously scored a victory in New York courts. Trump’s argument, which he is seeking the Supreme Court to affirm, is that a sitting president is immune from all stages of prosecution. “If the president were prosecuted, the steward of all the people would be hijacked from his duties by an official of few (or none) of them … We are hopeful that the Supreme Court will grant review in this significant constitutional case and reverse the dangerous and damaging decision of the appeals court”, says an attorney for Trump.

FINSUM: Two angles occur here—either Trump does have something to hide, or he is an incredibly sharp political strategist. Consider the scenario of Trump battling to block the release, him ultimately losing, and then prosecutors finding nothing suspicious in his returns. Nothing would prove his witch hunt argument more strongly. It would be a brilliant strategy.

(New York)

One corner of the bond market, or rather credit market, is having a tough time and it may be a negative sign for the rest of fixed income. CLOs, or collateralized loan obligations, which have been a star for several years, recent tumbled. In aggregate, CLOs dropped 5% in October, and those close to the market see more volatility to come. According to Citigroup “We think there’s more volatility coming … We recommend investors reduce risk and stay with cleaner portfolios and better managers”. CLOs are a key funder of the leveraged loan market, and weak demand there can flow through to boost borrowing costs to all corporates.

FINSUM: This is akin to a warning coming out of the high yield market, as what it reflects is worries about how leveraged companies might handle a downturn.