Displaying items by tag: rates

Monday, 10 September 2018 10:05

The Best Bonds for Rising Rates

(New York)

This is a tough time to be buying bonds. Prices have become very rich over the last several years and on top of sky high valuations and low yields the risk of rising rates causing big losses is high as the Fed sticks to its hawkish path. With that in mind, floating rate bonds and ETFs are a good strategy to combat the situation, as their yields rise as the market’s do. Most also invest in short-term bonds to lessen interest rate risk. Two of the most popular floating rate ETFs are the iShares Floating Rate Bond ETF (FLOT) and SPDR Blmbg Barclays Inv Grd Flt Rt ETF (FLRN). Both hold floating rate bonds with maturities of 5 years and under.


FINSUM: These seem like good options. The one downside to these ETF is that yields are quite low given their conservative nature, but they obviously have great downside protection.

Published in Bonds: Total Market
Monday, 10 September 2018 09:59

The Next Crisis is Looming

(New York)

As the ten-year anniversary of the last crisis has arrived this month, it is a fitting time to be thinking about what might cause the next one. In fact, many investors, professional and retail alike, are fairly obsessed with calling the next big blow up. But what might cause it? While trade war and political strife grab a lot of headlines, the real driver of the next crisis will be the Fed. The two big worries on that front are rising rates, but perhaps even more worryingly, its shrinking balance sheet. Crises have historically happened when money supply grew tighter, and that is what is occurring right now.


FINSUM: The markets have never been through the winding down of a major QE program, so it is hard to foresee how this may playout. Logic says that the next big blowout will probably be tied to the end of easing.

Published in Macro
Friday, 07 September 2018 10:00

A Bear Market Will Start by Year’s End

(New York)

A big bank has just gone on the record warning investors that a bear market is likely to start by the end of the year. So long as the Fed hikes twice more this year, which it is widely expected to do, a key bear market indicator will have been tripped. That indicator is the so-called “neutral level for interest rates”. The indicator preceded both the 2000 and 2007 bear markets. The idea is that the Fed will raise interest rates above their “neutral” level—the level at which they neither stimulate nor hold back the economy—and in doing so, will bring on a recession and bear market. The observation comes from bank Stifel, which summarized their view as “Weighing stability versus mandate, we believe the Fed has no realistic option other than to follow its projected dot-plot path, eventually revealing the speculative excesses created in the past decade”.


FINSUM: When you combine this indicator with the near yield curve inversion, it paints a very bleak picture indeed.

Published in Eq: Large Cap
Thursday, 06 September 2018 10:19

Data Shows Housing Meltdown is Near

(New York)
The last few months have been bleak for the US housing market. There has been a steady stream of negative data showing that the market is definitively slowing. Now a new one is emerging—bank lending is contracting quickly in the space. The fall off is so strong that banks are laying off workers in lending units. Both sources of demand for mortgages—refinancing and new home purchases—have dried up as interest rates and housing prices have risen. July showed the fifth straight month of declining home sales, coming in the time of the year when they should be strongest. Speaking about the state of home prices and mortgage demand, the chief economist at Fannie Mae says, “people are saying, ‘at these prices, and with rates rising, I’ll stay where I am’”.


FINSUM: We believe the US is in for a long winter of falling home prices. We think the market is at a turning point right now where sellers are trying to cling to high prices, but buyers have finally stopped giving in.

Published in Eq: Total Market
Wednesday, 05 September 2018 09:46

The Best Investment Ideas for a Yield Inversion

(New York)

The yield curve is very close to inverting, an action that is widely considered to be the strongest and most reliable indicator of a forthcoming recession. Investors are afraid of it, and with good reason. So what is the best way to approach one’s portfolio as a dreaded inversion looms? The first tip is to re-evaluate any bank stocks you own. Banks become less profitable as the yield curve flattens, so they could see some big losses. Secondly, mentally prepare that returns over the next five years are probably going to be a lot lower than in the previous five. Be selective with your purchases and be defensive. Finally, don’t be too afraid to buy stocks you have a high conviction on, and that hold strong risk/reward profiles.


FINSUM: These seem like sound tips. Another obvious one is to buy stocks and bonds that will perform better in this kind of environment, such as strong dividend growing stocks or floating rate bonds.

Published in Bonds: Total Market

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