Displaying items by tag: rates

(New York)

All the biggest names in bonds—Gross, Gundlach, Dalio—have been warning that a major bond bear market is on the way. However, Bloomberg is arguing that bears may have to wait as the tide in the bond market is reversing. Treasury yields’ rise has stalled, and in certain parts of the world (e.g. Germany), yields are once again falling. The big reason why is global fears over a possible trade war which could sink the economy broadly. This would weaken inflation and hamper hikes by central banks, pinning rates.

FINSUM: We have repeatedly said that we do not think there will be a bond bear market. There is a lot of natural demand for bonds given the aging population, which should keep yields at bay even if other forces are causing them to rise.

(New York)

One of the market’s big fears at the moment is rising rates. Inflation is rising and the Fed is poised to hike rates three times this year. With that in mind, Barron’s has chosen some stocks that will help defend your portfolio against jumping interest rates. Stock with good dividends tend to perform poorly in rising rate periods, but if you are looking for good-yielding stocks which will continue do well, look at commodity-related companies, whose free cash flow can maintain dividends. Exxon Mobil, Schlumberger, General Motors, and Kimberly-Clark all look set to do well.

FINSUM: So what sets these stocks apart is that their dividends look sustainable AND they have attractive valuations, both of which make them more likely to perform well.

(New York)

Market volatility is back in a big way. This has made investors nervous and has re-ignited interest in traditional safe havens such as bonds and gold. However, Goldman Sachs has just note put out a note saying those asset classes have evaporated as safe havens. “No safe havens -- and no assets or equity sectors -- have had a positive beta to the VIX recently, and few have had a positive beta to 10-year yields, leading to diversification desperation”, say Goldman Sachs strategists. Rates, which look to be heading higher, have been a major culprit in the decline of safe havens, as have changing strategies, such as at the Bank of Japan.

FINSUM: This is one of the main reasons the market might end up falling further than it otherwise would have. Since there is no easy place to put cash, the overall panic level may be higher in a situation of serious volatility.

(New York)

When you think of gold’s role in a portfolio, most would immediately say it is for hedging against inflation. However, new research shows that gold is only a good hedge for inflation over very long periods, such as decades or centuries. In normal time horizons, say one to five years, it is a very weak hedge, and equities have performed much better. Now this is not to say gold cannot be a good asset class in its own right, just that its traditional role should be rethought.

FINSUM: If gold is really a poor inflation hedge, then investors and their advisors need to think very carefully about how they conceptualize it within their portfolios.

(New York)

Aside from the general tensions over rising rates and what they mean for the economy, investors need to pay attention to another important consideration. That consideration is that with each basis point of increase, stocks are looking less attractive as the allure of dividends fades. While for years the view has been that “there is no alternative” to investing in equities because of weak bond yields, that perception is now fading as yields rise to a place where they start to offer acceptable returns. “Investors now have a viable alternative to cash with yields finally above inflation levels”, says the chief investment strategist at BlackRock.

FINSUM: It might not a recession, but the simple emergence of a viable alternative might be what ultimately unwinds this bull market.