Displaying items by tag: recession

(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.

(New York)

There is a little known recession predictor that has done a good job historically of predicting when the economy is about to go into reverse: conception rate. Based on analysis from 1989 to 2016, a period with over 100 million US births, three economists have found that conception rate consistently dropped just prior to recessions. Conception rate is different than birth rate in that it measures the decision to have a baby, not the actual birth of one. The economists found that months or quarters before a recession, the decision to have a baby declined.

FINSUM: So conception rate and birth rate are different, but obviously very linked. So, what is scary to find out is that the US birth rate just hit its lowest level since 1987. Reason to worry?

(New York)

The long-time biggest bond shop on Wall Street (actually they are in California) has just put out a stark warning to investors—ten-year Treasuries are going to hit 3.5% in the near term. The manager thinks yields will make it to that level this year but then stall. Above 3.5%, they say, yields would have a detrimental effect on growth and that as yields rise investors will be moving their money into different asset classes.

FINSUM: A 3.5% yield on the ten-year would be a pretty attractive proposition to many, and it seems likely that given how that figure would be simultaneously appealing and a warning of poor future growth, investors will likely move out of equities.