If you are sitting on the sidelines, or want to sit on the sidelines but fear missing out on gains, then you may be exactly representative of the market. Bloomberg argues that part of what is fueling the self-perpetuating cycle of market gains right now is what it calls FOMO, or fear of missing out. At present, the fear of missing gains seems to have eclipsed all downside fears, which could be a sign of euphoria, or part of what Wall Street terms a “melt up”. Bloomberg argues that the really scary part of the current melt up is that it doesn’t really have to do with the economy, it is just psychologically driven.
FINSUM: The market is valued so richly that one can’t help but look over their shoulder, but the doom and gloom stories are still getting old. That said, the CAPE ratio (you know, Shiller’s ratio), is the highest it has EVER been (yes, greater than 1929).
Bond gurus across Wall Street were calling it the beginning of the bond bear market. Treasuries had dropped significantly, with yields holding over 2.5%. However, the selloff halted yesterday as reports of Chinese plans to stop buying Treasuries were reported as possibly false. A commentator from BNY Mellon explains the situation best, saying “Whether the news of Chinese withdrawal was fake or not, the Treasury market is likely to continue to feel a little fragile, but the fact remains that the hunt for yield goes on and with no real signs of inflation yet and improving growth, there are still no real sellers out there”.
FINSUM: We think that is a very eloquent summary of the current situation. We do not think it is time to be bearish yet.
We have been warning that one of the big risks for bitcoin is the threat of regulation, and today that prognostication is looking true. The cryptocurrency plunged yesterday after South Korean regulators took steps to shut down the trading of bitcoin on the country’s exchanges. The government views trading of the currency as akin to gambling. Bitcoin fell as much as a quarter in South Korea and over 13% on global exchanges. It is now trading between $12,000 and $13,000.
FINSUM: Bitcoin is an interesting asset class, but because it operates in a gray area of legality, it is fraught with extreme regulatory risk.
If there was ever exciting news in the fiduciary rule saga, this is it. The Wall Street Journal is reporting that the SEC will deliver a proposed comprehensive fiduciary rule in the second quarter of this year. The challenge of delivering a rule governing all accounts will be very challenging however, even as the SEC says it is fast-tracking development, as it will be bombarded from both sides. One of the directors from the Consumer Federation of America puts it bluntly, “It’s difficult to see how they can come up with a solution that does not land them in court … If they propose a rule we like, industry will sue them. If they give industry a disclosure-based best interest standard that they want, we’ll sue them”.
FINSUM: The SEC is in a tough position, but them coming up with a proposal for a comprehensive rule would be a step in the right direction.
Some of the biggest names in bonds are making a bold proclamation that all investors need to hear—that the 30-year bond bull market is over. Both Bill Gross and Jeffrey Gundlach are saying that with Treasury yields rising—currently sitting about 2.5% on ten-years—the bond market has entered a new phase. Gundlach says we are entering an era of “quantitative tightening”, which will cause losses for bonds. Gross says the bear market was confirmed when 5y and 10y Treasuries crossed 25y trend lines recently.
FINSUM: We may very well be entering an era of tightening, but that does not mean it will necessary be a brutal bear market, especially with the demographically-driven demand for bonds. Additionally, with the economy going very well, a recession could be coming, which would ease the tightening.