Displaying items by tag: bonds

(New York)

Here is an eye opener- by some measures this was the worst year for markets in at least a century. Through early November, 89% of assets had delivered losses for the year, the worst market wide performance in a 100 years, according to Deutsche Bank. However, with the new truce between China and the US, many assets are moving into the black for the year. Also, the jump in oil bodes well for the energy sector as well as high yield bonds.

FINSUM: A lot of the near-term gloom got cleared up this weekend, and it seems possible that markets could have a nice end-of-year bull run.

(New York)

The credit market taught investors a very good lesson in the Crisis (not that many of them were paid attention to). One of those lessons was that the first signs of weakness in the market should be taken seriously, as they can be indicative of a pending meltdown. This occurred in 2007 before the cataclysm in 2008. It appears to be happening again now, as both US and European credit marks are showing some fault lines. For instance, the downgrade of GE is seen as a sign of weakness very similar to what occurred with Ford and GM in 2005.

FINSUM: There has been an extraordinary credit boom since the Crisis and there are bound to be consequences. The question is what the extent of those consequences will be. The market is starting to feel a bit like musical chairs.

(New York)

Jack Bogle, the founder of Vanguard, is a legendary name is investing. Not only did he found and grow one of the largest asset managers in the world, but he has a habit of being right when he predicts returns. Well, he has just made another prediction, and unfortunately it is not one investors will like. He thinks returns over the next decade are going to lag their historical levels badly. His forecast is that investors can expect a 1.75% net return with a 50%/50% stock-bond portfolio over the next decade.

FINSUM: If this call turns out to be right, it will have huge implications for retirees and pension funds, as “safe spending” rules and total returns for pensions will be devastated. That sad, we think forecasting that far out is all but useless.

(New York)

Here is an interesting fact for investors—municipal bonds tend to hold up well during periods of rising rates. The underlying tax benefits of the bonds mean their demand is well insulated even in such periods. The question is where to commit capital. Well, year-end tax loss selling is creating some interesting opportunities in closed end muni funds, says BlackRock. Some funds are selling at significant discounts to the NAVs, sometimes 10% or more. These funds tend to bounce back in the new year, which is called the “January effect”. The discount to NAV allows one to gain even if the prices of the underlying assets don’t budge.

FINSUM: Closed end muni funds look like a great place for some bargaining hunting until the end of the year.

(New York)

How to protect against the next recession? This is a difficult question. Since it may be rate induced, it will be hard to hide out in Treasuries, and gold has not inspired much confidence. Well, SkyBridge Capital thinks the big money maker is to short high yields. “Our largest short position right now is in high yield, and it’s not because we think we’re going to make money this year or next year … It’s to protect against the eventual recession or [a] surprise recession”, says a portfolio manager there. “If you’re looking to put on [a] relative cheap short position, it’s hard to figure out how you lose money given how tight spreads are”.

FINSUM: High yield has seen a big expansion of credit and a decline in quality, and when the next recession rolls around there are going to be some big losses.