(New York)

US Treasury bonds got walloped yesterday. Yields on the ten-year fell over 10 basis points following weeks of relative calm. The big move happened in the early afternoon yesterday, and sent ETFs sharply lower. The jump in yields was not contained to the 10-year either, as 20-years and 2-years rose as well. The big question is why the sharp move occurred. Analysts are saying it was actually overseas influences that drove the losses. In particular, the Bank of Japan announced a policy change that would send rates higher, which spilled over to the US. Further, some better news on the trade war front might have sent some money out of Treasuries after a flight to quality in previous weeks.

FINSUM: This is a really sharp move for it to have been from overseas alone, as these kind of big jumps usually move in reverse. It is hard to draw any conclusions, but it may indicate there are bigger losses to come.

(Washington)

The US property market is a complex and bifurcated sector right now. On the commercial side, prices look set to weaken on huge supply of property and financing. On the residential side, inventory is tight and prices are rising. On the latter market, new data out shows that home sales and inventory are plummeting, and prices are rising quickly. Home sales have fallen for a third straight month, and according to the National Association of Realtors, “The root cause is, without a doubt, the severe housing shortage that is not releasing its grip on the nation’s housing market. What is for sale in most areas is going under contract very fast, and in many cases has multiple offers”. US median home prices are up 5.2% year on year and have set a new high of $276,900.

FINSUM: So the market is seeing rising prices and rising rates. What gives? At some point fairly soon the market almost has to stall by default.

(New York)

Despite a generally weak year in equities, the market is still very expensive. That said, not every sector is and there are still some bargains to be had. Interestingly, more than half the S&P 500’s sectors currently trade at a discount to their historical relative value (relative to the S&P 500’s P/E ratio). These include: Tech, Materials, Real Estate, Industrials, Health Care and Telecom. Telecom is 60% below its average relative valuation, for instance.

FINSUM: Interesting to see how many sectors are at discounts. That said, the problem with this view is that there are no catalysts to prompt a return to the mean.

(New York)

Investors really focused on small caps may have noticed, but others wouldn’t have. There is an odd quirk occurring in the Russell 2000 this year. A third of the index doesn’t have any profits, yet those companies are rallying 50% faster than the rest of the index. Money losing small cap stocks are up 14.5% this year versus 9.2% in profitable ones. The big question is why. Bloomberg offers no clear answers, but does say that ultra low rates have historically boosted the proportion of money losing companies.

FINSUM: Passive investing is surely helping, as all these money losing firms are still seeing their shares bought purely because of index replication. A Russell 2000 minus money losers ETF would be interesting.

(New York)

Ever since the Republican tax package was passed, along with its limitation on SALT deductions, there has been a lot of speculation that there might be a mass exodus of wealthy northeasterners to no-tax states like Florida. However, in practice that does not seem to be materializing. Financial advisors in New York and California say many clients are considering relocating, but in reality few are. A quote from Bloomberg explains why: “Wealth managers and tax lawyers say many of their (New York) clients are staying put after hearing about the scrupulous records they would have to keep to show they’ve really uprooted their lives and severed ties with their former states … and that it’s not as easy as just spending a few more days a month in a Florida vacation home”.

FINSUM: It is a very big lifestyle change to uproot one’s life in your 50s and 60s and move thousands of miles away purely for financial reasons. We suspect that there will only be a trickle here rather than a flood.