Displaying items by tag: recession

(New York)

Many investors are worried about rising yields, which could wreak havoc on everything from the economy, to income stocks, to all manner of bonds. Well, for what it is worth, Morgan Stanley has just put out a piece arguing that the 3.12% yield seen on the ten-year Treasury recently is it, the peak. Morgan Stanley says that yields will stop rising and they are advising clients to go long Treasury bonds at current yields. The argument stands in contrast to Pimco and JP Morgan, who both see yields moving towards 4%. The one caveat to the call is if trade tensions get settled quickly, as turmoil on that front is one of the bullish drivers they see for Treasuries.

FINSUM: If trade tensions keep flaring we agree that Treasury yields are likely to stay flat or fall as investors flee to safety.

(New York)

Don’t be fooled by the “prophets of boom”, or the many Wall Street and economic leaders who are saying that the US economy is in great shape and will deliver strong growth for years to come. One well known strategist, David Rosenberg, who called the Great Recession before the Crisis, says that a recession is imminent and will arrive within the next 12 months. Rosenberg believes the January 26th high for the S&P 500 will be the peak of this bull market, and that it will ultimately be the Fed that sparks the recession. “Cycles die, and you know how they die? … Because the Fed puts a bullet in its forehead”.

FINSUM: There are a lot of late cycle indicators flashing in the US economy right now. A recession in the next year does seem plausible, if not overly likely.

(New York)

One of the world’s most famous fund managers has just gone on the record warning investors that the next recession is likely to lead to a brutal reckoning for markets. Paul Tudor Jones, famed for making a killing in the stock market crash of 1987, said that “highly dubious” asset prices are going to be hit as monetary policy exhausts quickly. He is worried that the US does not have any fiscal stabilizers to help ease a recession. Jones believes that interest rates will normalize and that asset prices will fall in the very long run.

FINSUM: This is a lot of doom and gloom, but it is hard to imagine it really being this bad. A bear market, maybe, but a total collapse seems unlikely.

(New York)

Investors beware, the strongest predictor of recession has just rung its bell. An inverted yield curve has predicted all six of the US recessions going back 60 years. And while all of investors’ focus has been on whether the Treasury yield curve will invert, the global yield curve already has. The yield on the ICE Bank of America index of government bonds due in 7 to 10 years has already inverted, with such yields being lower than for 1 to 3 year bonds. While the US economy is currently looking strong, there is growing weakness in Europe, China, and emerging markets, which seems to have inverted the curve. The IMF says the clouds over the world’s economy are “getting darker by the day”.

FINSUM: It is seeming more and more like we will have a global recession. Though, the US seems like it will be the last to succumb to it. One thing to remember—in the US it takes an average of 18.5 months from when the curve inverts to when we reach the peak of the growth cycle.

(New York)

Whether you like it or not, the next recession is on its way. The big question is how long until it arrives. Most estimates range from 6-24 months, but most agree we are coming to the close of a very productive economic and market cycle. So what is the best way to prepare your and client’s portfolios for a downturn? The answer may be unconstrained bond funds, such as the Loomis Sayles Bond fund. Unconstrained bond funds, which can invest in any type of fixed income instrument in any geography, have done quite well this year compared to other areas of fixed income. Some funds are focusing much more on shorter term corporate credit, rather than rates, to greatly lower their interest rate risk.

FINSUM: Unconstrained bond funds seem like a good way to get some solid yields while also protecting against big losses. We think short-term Treasuries and investment grade are good choices, but are wary of longer-term sovereign bonds and junk bonds right now.