Displaying items by tag: rates

Friday, 23 March 2018 10:07

Why a Recession is Coming

(New York)

Barron’s has just interviewed a prominent economist—Stephanie Pomboy—and she has some very interesting opinions about the economy. Rather than seeing the economy’s recent growth as a good performance, she analyzes the data to show that this pickup in growth is actually the last gasp of American consumers before a big recession. Digging into corporate spending data, she shows how the US consumer has been stretched by everyday expenses even as discretionary spending is weak. Consumers have had to pay for extra everyday costs, such as on food and energy, from savings or credit. Now that the savings rate is starting to rise, Pomboy thinks we are headed for a recession.


FINSUM: This is an entirely different way to read the tape, but may not be that far off the truth.

Published in Eq: Total Market

(New York)

One of the big risks for the current market regards the economy. The big fear is that the Fed may raise rates too quickly, which could bring on a recession that would in turn sink stocks. However, there is another risk to the economy that is not as well understood. That risk is one of a labor crunch that curtails economic output. Demographic shifts mean there will be a shortfall of 8.2m workers over the next decade. As Barron’s puts it, the implications are broad and easy to explain: “Oil and gas stay in the ground because there aren’t enough workers to extract it; homes aren’t built because builders can’t find enough laborers. In Maine this winter, the state couldn’t find enough people to drive snowplows”.


FINSUM: We think this is a just another reason why inflation and rates are not going to rise significantly. While workers are short, wages aren’t rising that fast, and if economic production also stays weak, then we just don’t see a bond bear market coming. Stocks are another story, however.

Published in Eq: Large Cap
Monday, 19 March 2018 11:01

Forget About a Bear Market for Bonds

(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.

Published in Bonds: Total Market
Monday, 19 March 2018 10:59

Four Stocks to Defend Against Rising Rates

(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.

Published in Eq: Large Cap
Tuesday, 13 March 2018 10:11

Goldman Says Market Havens are Collapsing

(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.

Published in Macro

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