The next contest will be which can lose the MOST, stocks or bonds. If the 30yr bond rises from -2% to 4%, look out! The losses will be more than if the stock market loses 30%. There is $$$ to lose in both at the moment. Buying bonds at their bottom (the highest valuation) then selling when rates start to rise won't make anybody much.
It's time for retiree to rebalance bonds to stock or maybe not
1
I am one of the lucky investors who saw at the beginning of the year that bond yields would be affected by a Brexit that looked more and more chaotic by the day and by the Trumpian trade war that fluctuates day to day based on our President's mindless tweets and temper tantrums.
Today, I make literally thousands every time Donald Trump or Boris Johnson says or does something ignorant, thoughtlessly aggressive or politically short-sighted and am thus a very very happy man.
8
Didn't invest in bonds because we didn't trust the bankruptcy king to uphold the well established faith in Tbills. He is now talking about possible defaults. When it comes to finance, or anything else for that matter, he cannot be trusted.
7
Several points may add perspective to this analysis:
1) The total US public and private bond markets are much larger than US stock markets in value.
2) Also, although about 1/2 of Americans own stock; the ownership of bonds is probably much more narrowly concentrated among the wealthy.
3) For long-term corporate bonds, should interest rates decline significantly, then most have a call provision allowing the higher interest rate paying bonds to be called and lower paying corporate bonds substituted for them. A type of insurance protection for the issuing corporation. If rates should rise however, the investors in the corporate bonds paying lower interest rates have no such protection; and, they will suffer capital losses from their bond investment.
From the corporations' perspective:
If rates rise, the lower paying bonds were a good corporate decision. If interest rates should fall, then the old bonds can be called and new bonds issued at the lower interest rates.
From the investors' perspective:
If rates rise, the investor is stuck holding the originally issued low interest rate paying bonds, with capital losses resulting. If rates should fall, then the originally issued high interest rate paying corporate bonds can be recalled, and substituted for with lower interest rate paying paying bonds. Thus, a good long term corporate bond investment's life is shortened and investors lose.
Head's the corporation wins, tail's the investor loses.
[8/29 Th 10:36p Greenville NC]
3
Nobody under 35 has any money except a few (mostly because their families are at the top). They won’t be buying enough new cars to keep auto employment up. Car loan defaults, a canary in the coal mine because they are fixed payments (e.g. $500/month vs credit cards which can be adjusted down to the minimum payment for a while), are not doing badly except among younger borrowers. Delinquent car loans just hit record highs (seven million people are now 90+ days delinquent on their auto loan). However, the share of auto loan borrowers who are three months behind on their payments is now only 4.5%, because the total number of borrowers has risen so much in the past several years. Liar loans are common, and, like 2008, they have been bundled into bonds that will fail. Of course, that also means nobody needs a new car.
So, nobody under 35 has any money, and nobody needs a new car. Everybody except old people is spending now on credit and saving too little for retirement. They will do even worse and, forgetting about 2007, refinance before Chri$tmas.
January 2020. The recession will hit. The wicked fun Trump rallies, like the hippie wicked fun rallies of '68, are mobilizing a new “moral majority”. The Democrats will take the presidency House and Senate. They will keep them for many years. Voting will become easier and more secure from the attacks by voter fraud liars.
10
I moved heavily into bonds when CurrentOccupant got elected, because I figured the stock market is reality-based and would react appropriately.
Dang, was I wrong. Turns out the stock market manifests a humongous Stockholm Syndrome dynamic.
3
This is the logical equivalent of saying "you should've invested in the thing that made the most money." Well duh. Hind sight is 20/20.
10
Young Gilbert Shank in Minneapolis should balance his 401k portfolio instead of essentially thinking he is better off timing the stock market by pulling completely out of it and putting it all in bonds. Find an appropriate asset mix and rebalance on some regular basis. Doing otherwise can be very dangerous.
7
Always nice to know that parasites who add nothing of value to the universe are doing well. Keeps em off the streets.
4
How nice to give recommendations to people who can afford to invest. Tough nuts to anyone who can’t.
2
Stay short term. Look for maturities of 3 years or less.
1
No mention of tax-free municipal bonds here, which provide some nice income every quarter free of federal and state taxes and which have the backing of government agencies. While they don't provide the returns of corporate bonds, they're a safe bet and the returns are better than T notes.
2
Just don’t think this is “the risk-off trade”. A couple of years (in the next 10 [or 30]) of inflation could nullify recent gains in a hurry and the 1 1/2 per cent earned now would be essentially “negative”.
2
20 year old advice from a friend who had just sold his share of an investment management business and purchased Exxon stock, along with nine others: "If it was good enough for the Rockefellers, it's good enough for me."
@Andy Hain That was a different century.
4
Where are all the bond vigilantes that we were promised would take over back in 2009 by the Conservatives and Republicans when Obama and then Dems passed the 800 billion dollar stimulus package that by their claim cause bonds to collapse as interest rates soared to the stratosphere? We were all told again and again by the Republicans like Ryan and McConnell, and especially, Larry Kudlow that massive government borrowing would cause bond yields to soar, and runaway inflation.
I have been hearing this malarkey from the fake deficit/debt conservatives for over 40 years that government borrowing causes a bond bear market, inflation and gold prices to soar. I feel like Linus in the pumpkin patch on Halloween waiting for the Great Pumpkin to arrive - exactly when is this doomsday bond bear market going to happen?
21
Funny! Last month everyone was calling this the Obama economy....not so many today.
6
The “Obama economy” was a beautiful thing: Steady growth and low volatility. That ended in November, 2016, when we elected a total nitwit named Trump, supported by a Republican Party that has been determined to destroy our economy for a couple decades (at least). We are just beginning to feel the results (less than three years into his presidency!) of a president who once suggested defaulting on US Treasury bonds as a reasonable action. I listened to a Bloomberg interviewer this morning ask when will the markets get back to something closer to “normal?” The answer is, sometime after Trump is removed from office, if it’s possible at all. How long it takes depends on how much damage he has done. Every day he does further damage.
26
@Charlie: Can you give us some links to that?
3
@Charlie , If you're trying to suggest that the "Obama Economy" is faltering because its The Obama Economy, I disagree. Its faltering because a terrific Obama economy, by definition, became the Trump economy and THAT is faltering for obvious reasons: an infant-President that, tantrum like, is looking to dismantle all that Obama accomplished. Mr. Trump has a psychotic fixation on his infinitely more capable predecessor and that psychosis, unique to him, is dangerous to all.
9
Investing in bonds, especially mixed-term ETFs, is a negative in terms of the opportunity cost of money. Bonds yield circa 1.47% and lower which is below COLA/inflation. Thus, one is losing money. The problem with our stock market's crash over the past year are directly related to Trump's tweets about tariffs on allies and China. Since his threats can destroy sectors here and abroad, it is impossible to trade. Besides, the bond curve has been inverted for most of the past six months. We and the world are on the verge of a recession because of Trump's lack of knowledge on worldwide economic ties that are necessities. Meanwhile, he has left a vacuum in continents in which he has no interest. Africa is almost completely taken over by China, while the latter is buying agricultural needs from South America but at the same time buying certain industries such as fisheries. Bonds are not a safe haven: federal bonds are chugging along on the edge due to our trillion-dollar deficit while municipal bonds are subject to bankruptcy as tax income from agricultural states vanish. There is no safe harbor anywhere except in real estate pass-throughs, real estate being the greatest beneficiary of Trump's Tax Act. I suppose certain golf courses can now be treated as non-profits or trusts.
7
@Lillian F. Schwartz
I suspect that Trump's friends are making great fortunes in this roller coaster stock market. It sure looks like T is manipulating the market by his tariff-on and tariff-off announcements. His friends know his moves in advance and sell, buy just before the announcement. Classic "pump and dump".
5
@Lillian F. Schwartz In my opinion you are correct, except, of course, when you are not. Timing is the independent variable here; While I've run my own Registered Investment Advisory and might be expected to be a stock tout, my approach has been conservative. Albeit heavily weighted in fixed income (medium-term investment-grade corporates) I HAVE included about 15% in an investment-grade value stock portfolio and have let it sit, virtually unchanged for the past nine years. And, taken about 3% income each year, reinvesting dividends. Have I seen explosive growth in my holdings? No. But. My balanced approach has allowed my bonds to soar and the stock portion to add a nice kicker. In sum, simply doing a simple-minded asset allocation, and sticking to it, enjoying a nice steady 7% p.a. return, with which I'm perfectly content. I'm sure your real-estate orientation can and does work, until its no longer THE game in town. Every investment category has its downdrafts.. I remind you of Mr. Rothschild who, when asked how he always made money, replied "...I buy a bit too late and sell a bit too soon."
1
If bond buyersf are making a killing, imagine the gains of government insiders (like those in the White House and Treasury dept, for example) who can take positions in the financial markets, days or hours before a policy announcement, based on insider information.
14
Hmmmm... Whenever I read a headline, "Bond Investors Make a Killing.. You should have bought bonds," from a leading outlet like the Times, it's just about time to take pause and become a Contrarian.
Me thinks the Bond market has been overbought as of late and that there could be a classic "Bond Market Correction" lurking around the corner.
I think there are some high quality stocks with high yielding dividends that have been thrown out with the bathwater in the past month. Just saying...
10
If you think Trump knows what he is doing, and says what he knows, all your money is now in North Korean real estate. And if you don’t have any money to invest, you are investing with funds borrowed from Deutsche Bank.
11
The most pertinent question is:
“How much money did the trumps, kushners, menuchins, rosses, hannitys, et.al. invest in bonds in a coincidently timely manner?”
20
My 403B was shifted to a heavy Bond balance some time ago.
I own some of the junkiest of junky bond funds in a highly-diversified portfolio of mostly blue chip stocks and expensive reits. Some of these funds yield upwards of 12% with exposure to all sort of questionable companies (and adding a good dose of leverage to the mix). This is obviously a risky asset. But, in the context of otherwise conservative holdings it adds a little spice to the recipe, not to mention another few points of yield. Can they go bust overnight? Possibly. But as the great Michael Milken determined long ago: a basket of high yield cruddy bonds will, over time, easily outpace more conservative debt holdings. So, far, he was been proven correct in my modest portfolio.
1
And if you didn’t already own a position on bonds, you’re too late. Nothing to see here.
13
"But early this month, after stocks fell sharply, Mr. Shank grew worried about “political instability” and reports that the economy could be slowing down. He moved almost all the money from his 401(k) into bond funds."
THAT sounds like a typical investor case of selling low. Then when the stock market rebounds he's going to miss out on gains (apparently fine with him) before he gets back into the stock market, i.e., buy high.
IF an investor is properly diversified, there is no need for panicky moves "after stocks fell sharply." Rather, a good mix of stocks and bonds evens out performance in good times and bad.
35
@Anne-Marie Hislop: A lot of people here are making smart comments but yours is truly intelligent. No one knows what is going to happen in the future, either in the markets or in the world at large. Diversification is the best way to prepare for whatever may happen. Rebalancing is the best way to take advantage of whatever does happen. Not panicking is the best way to avoid outsmarting yourself.
9
Considering the track record of the current occupant of the White House, with the faded outlines of the Trump name on airplanes, casinos and hotels as a reminder, a flight to relative safety in bonds is reasonable.
And with the Fed and central banks worldwide lowering interest rates to address the global slowdown, bond prices will probably show further gains at the expense of stock prices.
Fortunately, there are global bond index funds available with very low fees that make rebalancing easier.
4
It's true that bonds have been an unexpected bonanza for those (of us) who chose that vehicle as a repository of some monies. But that was then, this is now. With yield curve inversions and negative interest rates threatening I suspect the boom-time days are done. They reflect a top in that sector
Today the biggest bubble, to me, is the bond market. And here's the thing for all to take into consideration. The bond market is a lot bigger than the stock market so its impact risks tend to be more....structural.
Here's an example why. The 10 yr is 1.50%. So a $1,000 bond gives you $15 annually. Yes rates are low now, but what happens should interest rates rise to 3%? Do all those stampeding into bonds realize that the price of that $1,000 bond drops to $500? Market cycles have not been rescinded. Interest rate rises are inevitable though the timing is obviously uncertain.
A LOT of people are now investing in bonds thinking they are safe. Most are if you hold them to maturity. But consider the example above. For most, especially given the careening volatile natural of all the markets today, your risk is a lot higher than a normal bond player usually would tolerate.
My suggestion if you play bonds? Start thinking about taking profits.
John~
American Net'Zen
8
Thank you . " Most are if you hold them to maturity" - I wondered about the reliability of Bond's secondary market , most articles blandly refer to performance of secondary market.
I wondered how an individual investor can make decisions when there isn't a transparent guidelines in Bond market available to us like stock markets.
Your reply clearly shows the how primary market is safer and when moving into bond bandwagon with current frenzy, one needs to be mindful of its future value
2
To an investor who has been and is more interested in equities than debt instruments, belief in the prognostic accuracy for a coming recession of a yield inversion for government bonds seems misplaced this time around.
The key is twofold: The current volatility in the stock market is less an indicator of an underlying weakness in the economy than it is a reflection of the erratic, on-again-off-again trade war waged by President Donald Trump. Secondly, much of the inflow of money to U.S. Government bonds is coming from countries with interest rates lower than America, but the purchases are by people who prefer shorter term debt than longer.
Regardless of the nationality of bond buyers, they want quicker exits back into stocks when the current acrimony ends between Donald Trump and China, Donald Trump and the European Union and Donald Trump and the Federal Reserve.
Whether or not that reduced volatility comes before the end of 2019, it will end in January 2021 if there is a change in party in the White House and of the Senate leadership.
6
Meh, still remember the days when my parents could purchase a Microsft, PeopleSoft or other tech or pharmaceutical stocks and make $100,000 in 2 years. Investing is not exciting these days and what were the percentages listed in this article for bonds 2.3 or 3%?
3
If China even does a fake cough with the words “we’re selling treasuries”, it’ll be a Doomsday scenario for both the bond and stock markets. The bond market hit, however, would have a much more devastating effect on everyday Americans.
4
@Covfefe for every seller, there must be a buyer. Who's going to buy the bonds if they sell them? Unless they turn them in at maturity they face a bounded open market laced with risk. This old song has been bandied about for 30 years now...
2
This is modified market timing. A fool’s errand.
20
I'm not a finance guy at all, but I gotta ask:
Are we supposed to believe there are "bond investors," who invest in only bonds? The first rule of investing is diversification.
10
@Randall there are so many different types of bonds with many different options that it isn’t difficult to diversify within the bond market
3
@Randall
One type of pure-bond investor is the professional working in the field.
See, for examples, the once-legendary Bill Gross (formerly of PIMCO) and Mohammed el-Erian; Tom Wolfe's late-1980s novel _The Bonfire of the Vanities_ (not the execrable movie adaptation); and the movie dramatization of the events leading to the collapse of Lehman Brothers entitled _Margin Call._
2
"Longer-term bonds have done even better. If you simply bought the 10-year Treasury note at the end of last year, you’d be up almost 13 percent. In other words, an investment that is seen as virtually risk free (because repayment is considered guaranteed by the United States government) has done as nearly as well as the much riskier stock market."
A little misleading. There is thought to be little *default* risk, but this is not the only risk. There is interest rate risk; had the Fed kept up with its announced interest rate increases these bonds would have dropped significantly since when interest rates go up bond prices go down. And there is also inflation risk; a dollar 10 years from now may be worth much less than a dollar used to buy these bonds if inflation picks up.
16
Reading between the lines:
--The big corporate announcement last week that shareholder value was no longer of paramount concern means that the share buybacks that have fueled the phony bull market are ending. Corporations first used their Trump tax windfall to buy back shares but they are now borrowing the money to keep share prices aloft. GE could have repaired its balance sheet but instead used its cash to buy back shares, to no avail.
--Oil and gas prices have been heading in opposite directions for some time, a tipoff that a recession is around the corner. Shale fracking firms that have NEVER made a profit are packing the bankruptcy courts, some for the second time in five years.
--Trucking firms are downsizing like mad.
--Farm bankruptcies are surging, but Trump's gullible victims are still supporting him as they go on welfare.
--The trade war will finally pop the colossal Chinese credit and real estate bubble. Everyone in the world should STAND BACK!
15
Long term bonds have never been stable or conservative. Anyone surprised by their volatility needs to do better due diligence.
2
Remember bonds and bonds funds are different beasts. They have very different risks and volatility.
7
These are year-to-date.
Including the last year and this, it's neutral mostly all around. Why is everyone saying year-to-date it's awesome?
4
It is easy to look backwards to tell people where they should have been or in this case what they should have bought. Short term investing is a disaster for all but a very few. Long term is where it is out and $25 or $50 a month directly invested with a company’s stock agent will be a substantial amount of money after 49 years if the dividends are reinvested. The cost to purchase directly is well less than $1.
7
Stocks are really a much better investment long term. Historically, bonds mostly tread water, barely outpacing inflation, while stocks earn ~6% annually over inflation. This is not to say bonds are useless, as they are great for security, and perform well in turbulent times like right now, but for long term wealth building stocks are much better. As other people have correctly pointed out, though, this really only affects a lucky few, as 80% of the stock market is owned by the top 20%, a scary fact that is largely ignored when discussing the economy.
24
Lol
It’s cute that people at the Times think middle class Americans have disposable income to buy bonds.
1/2 of the USA couldn’t get their hands on $5,000 cash in an emergency. That’s over 150,000,000 people. But they’re supposed to trade on the stock market?
I really don’t think some people have ever lived in the real USA. Like, it really feels like they’ve spent their entire lives in private schools going to private country clubs flying on private jets, and they’ve never once in their ENTIRE life interacted with anyone who has ever had to choose between paying the light bill or buying groceries. And it’s infuriating!
106
@Austin Ouellette Unfortunately, it is actually only 500$ that most Americans could not come up with in an emergency.
64
@Austin Ouellette Doesn't mean some of us can't at least try. I'm on the lower end of the income bracket (approx. $25,000) but been trying to get $25 or so a two week paycheck stashed. Still, I can imagine it not being easy.
14
@Austin Ouellette I hear you but there's lots of people that have IRA's etc invested in stocks & bonds.
6
Remember that interest is taxed at your ordinary rate but capital gains, like dividends, are taxed at 15% for most of us.
I'll stick with stocks.
10
'The trend is your friend' doesn't always result in positive returns. Corporate bonds are basically in bubble territory.
If you like risk, try to time the dollar.... When/if it plunges, there are some good currency plays out there...
3
How to make money investing in the stock market: buy on the way up, and buy on the way down.
8
@Anonymous
I've done that for 40 years a retired low 7 figures. I'm not smart and have no real skills.
2
Stay in the stock market as you always do. Trump will make sure that stock market will continue rising. Besides, it is already too late to buy bonds. Trust me. I have lots of experience, and I am always too late. Hopefully, you will not be like me.
11
@Usok:
'Trump will make sure the stock market will continue rising'? LOL! Is the incompetent, reckless Sociopath-in-Chief is not someone any of us should count on. I haven't made a dime in the market in the past year; the market went way down last year, then came up, and now--Donnie's idiotic Trade Wars have added a level of volatility that is hard to stomach. Putting your faith in Trump is....insane!
2
When the news of bond yields appears on news papers, it's already late.
107
Take a look at Gold. It beat all of them year to date. Gold is up 28.16% this year with more to go.
15
WTI Crude is up 22.5% ytd... and as commodities go, it's a fair bit more useful too.
Both gold and oil prices are telling us that the US Dollar is weakening in international trade. A weaker USD is, of course, a _policy goal_ of the administration aimed to increase exports in the face of tariffs; why else have the modest interest rate increases approved by the Federal Reserve resulted in its Chairman has become a whipping boy. But then everyone else is trying to weaken their currencies (e.g., the ECB and its talk about reviving quantitative easing, the People's Bank of China's inaction to defend the renmimbi) in the hope of raising exports, while erecting tariff barriers aimed at reducing imports.
The competitive stupidity at work is very reminiscent of the post-World-War-I errors described by Liaquat Ahamed in his excellent book _Lords of Finance, The Bankers Who Broke The World._
11
@A. Reader I wonder how many people are aware of this? Either way nice to add a little more history to what you know.
3
Even better: Bitcoin, up 250%! Woo! And its fundamentals are as sound as ever!
/s
2
I’ve invested in a diverse mix of stocks and bonds and I very seldom reallocate funds unless my portfolio profile starts to veer away from my goals. If you can’t stand the risk of the occasional bust then the stock market isn’t for you. It can be stomach churning when the market starts to tank but unless Trump does something totally insane such as starting a nuclear war, at some point what goes down will come back up.
42
@Cindy Mackie
The stock market doesn't doesn't work for a lot of people, mostly those with moderate to low incomes. The hard part is that there are no other options for savings. A 0.2% interest rate on savings is a losing proposition.
6
@Cindy Mackie Complete disrespect for those who work.
2
Lots of increases for those with capital no matter what the investment--not so much in terms of wage increases for working people.....
57
Yada yada. A well-balanced portfolio, no matter how small it is (believe me folks, I am by no stretch of my wildest imagination a millionaire - a thousandaire, maybe), should always have a bond fund or individually purchased bonds in it. And the more allergic you are to risk, the more government-backed bonds, including TIFs, should be added to the portfolio and less "risky" stocks. It's just Investing 101 and I learned it - by joining an investment club and doing the necessary work to learn. It's not rocket science, anybody with a will can learn how to do basic investing and what needs to be done in terms of risk evaluation and investigating potential investments (a/k/a doing your due diligence).
15
China has outsmarted Trump again! China holds about $1.1 trillion in U.S. Treasury bills, notes, and bonds. Thanks to Trump’s trade war, and assuming a 12% gain, the value of China’s Treasury holdings potentially has increased by $130 billion year to date.
105
@George Well by this logic, the U.S. is the real winner given the Treasury holds ~$2x10^12 in treasury notes... meaning trillions in gains.
China's collateral damage from other U.S. asset investments and trade exposure far exceeds any return from their position in US Treasuries. Regardless, there's no plausible scenario in which they would realize a material amount of these gains, as there's no other market with the US gov't debt's size and stability -- China doesn't have a better place to park their savings.
I'm not arguing that this is a good thing for the US (I'm of the opinion it is very bad for both parties economically), but to claim this is a win for China over Trump is naive.
10
@JS in a real trade war to destroy US markets, China could ‘dump’ the bonds.
6
Long term just buys stocks with dividends. The dividends will buy stocks at low or high and cost average. Buy regularly and cost average. Basics for non-wall street folks. Ordinary folks get burned trying to time the market. Oh and thank you Jack Bogle... for VTI.
44
I also thank Jack. I’m lucky enough to have an awesome investment advisor at Vanguard who follows the set philosophy and prescribed methodology for investments. So my bond funds are in a happy place right now.
10
Just imagine how much you could make if you knew what Trump was going to tweet and when. Not that he and his circle of upstanding friends would ever dream of it! Or his magnanimous and selfless children. But just imagine.
207
@Keef In cucamonga
I’m pretty sure there is some investment ploy that he is playing with his own money. Are there any rules that apply to presidents about investments?
10
@Keef In cucamonga
Yes, just imagine...!
But there are laws against this
1
@Keef In cucamonga He has a lot of big money friends that love to see him Mar-a-Lago. What do you think they talk about? I can't imagine myself.
1
Tell me last February, not now :)
So, who blinked? The first-mover smart money, or ignorant people scared by volatility? That should tell you where the yields are going.
But really, the question is what financial rates mean for the long-term economic health of the US and our children. The answer doesn't look good.
1
Yes today’s bond holders have gained at the expense of future retirees. In the US it is bad enough, in Europe Japan and soon to be others it is worse. Central banks have mortgages the future by providing a current sugar high to goose stock markets and engage in currency wars. Those who have held bonds have done very well as greater fools pile in (again thanks to central banks) but those pension funds buying now will have nothing to pay their pensioners with.
2
@David That’s not the fault of those people moving into the bond market. DJT is scaring people so they are trying to find somewhere safe to put their money, although in 2008 the bond market wasn’t all that safe either. If interest rates were higher a lot of the elderly would probably park their money in a bank account, but who can afford to just accept bank rates anymore? DJT is responsible for what’s going on and I have no doubt he’s shorting the market whenever he puts out a reckless tweet that hurts the rest of us. Corrupt to the core.
42
@Cindy Mackie If he isn't someone close to him is. To play the short game you need excess money and inside info. There are a lot of really wealthy people not ever in the news who have private wealth and some even have their own seats on the exchanges. For us retail investors it's buyer beware.
12
@Cindy Mackie
I doubt very many real people are moving in to bond markets globally. It is forced buying by banks and pension funds. That money then trickles down to large corporations and, yes, the government who then distribute it to the alreAdy very wealthy in the form of share buybacks and tax cuts for billionaires. No factories or bridges have been built with QE.
3
From Investing 101; Mr. Shank, never, ever put all your eggs in one basket. Bonds today could become tomorrows nightmare. Diversify. If you are really "waiting for the recession to happen", then buy stocks on short calls.
12
@GR. And the guy. Mr. Shank, is just 30 yrs old. Good luck to him timing the market and forecasting interest rates over the next 36 yrs or so.
3
It is important to distinguish the "risk-free" nature of government bonds with their value, which can fluctuate a lot if they are long term (10 to 30 years). Risk-free refers to the possibility of default, which are close to zero, as the US Government has yet to ever default on its bonds (though Republicans advocated touching this third rail a couple of years ago. However they balked.). They are also guaranteed to give you back your principal, but ONLY if you hold them to term. The value during the holding period can fluctuate quite significantly if interest rates go up or down. If the economy suddenly went into a boom (or people lost confidence US credit) and 30-year interest rates went up 2%, 30-year Treasuries would experience a drop of about 60% in value (multiply the term by the percentage to calculate the approximate gain/loss in price from interest rate fluctuations). This seems unlikely in the short term, as possible recession looms, which is why yields have dropped and bond prices have correspondingly spiked. But don't confuse long-term safety with short-term price stability. If 30-year bond prices were stable, they wouldn't have spiked 26.4% in only 8 months. Bonds are an important part of a balanced asset allocation, because they often move somewhat independently (and often opposite) of stock movements. Like ballast in a boat, they keep you from tipping up or down too much in a storm.
20
Thank-you -we, as the general public really count on these kinds of reports, this kind of reporting. The NYT is vital in all that is happening. We are trusting the NYT in presenting the more complete, as honest as possible, picture. I say this as an insider in politics and finance.
10
@Stanley
It scares me that as an insider you believe them. That is the strangest comment I have ever seen.
2
I did what Mr. Shank did...but I'm 65 and semi-retired. At 30 the prevailing wisdom would have been to ride it down and back up. But I get it, now, if we can just time the bottom correctly...but, of course, that seldom happens. good luck to us.
11
@Jonathan Smoots, timing does not work if one does not know what is likely to happen. Sometimes, as in the period before the housing bubble recession, it is obvious what is likely to happen, and it makes sense to time the market. It certainly made sense to sell stocks in the few months preceding the housing bubble crash. I don't see any reason to time the market now.
2
Sounds a lot like February 2007 to me!
8
Two words. Political instability. Trump every day scares me a tad more with his ardor for trade wars and absurdly erratic comments. The market is at a high level, the economies of other major countries are cooling off or are already in decline, and POTUS has nicer things to say about Russian and North Korean thugs than he does about the Fed Chair, whom he named. Time to revisit my exposure in equities.
12
Did you know since 1945 there has been a major recession in every Republican Administration. Why they keep getting voted in shows the Republican supporters don’t follow the history of there party and are out of touch like their bad candidates.
194
As a former Republican who has studied and lived history, you’re right!
8
When both “smart money” bond investors and stock investors take their paper gains and run to the cash exits, do we have a liquidity crisis all at the expense of the working American’s 401k?
Stocks and Bonds are supposed to be inverse related. Stocks are risk assets, bonds are not.
Where do we go from here?
11
@Sailorgirl
People shouldn't be calling bonds no-risk. They are lower risk (aka volatility) than stocks most of the time, and often non-correlated to stock movements (aka not all your eggs in the same basket, moving up and down together). But they still have risk.
...and online certificates of deposit, all insured up to $250,000 per account by the FDIC, are also priced and traded like a typical bond. For instance, back in Nov-Dec. 2018 when the yield on the 10-year treasury bond peaked at 3.27% (sad, but such a "peak" was still historically low), one could buy a 5 year Goldman Sachs CD paying 3.65% for 99, or a point below par. That same CD now sells for close to 107 and 10 year CDs at 3.65% bought then at 100 now sells for 113 or so. Of course, if you sold now you'd have a nice short term gain, but you'd be giving up the yield. The newly issued Goldman Sachs 5-year CD now yields 2% and is callable after 6 months.
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@marty And the interest on the Treasury bond is taxed by the US but not taxed by the state, whereas the interest on the CD is taxed by both the US and the state, so the playing field is somewhat leveled.
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Smart-Money-Wall-Street says, "They're performing well, they're perceived as safe and no one thinks interest rates will ever go up again."
Um... hmmm.... so the very recent past is a straight-line predictor of the future for as far as the eye can see.
Doesn't this sound an awful lot like "housing prices can only go up"?
I am reminded of Nicholas Nassim Taleb's parable about the turkey being fattened up all year long, who cannot imagine its head being chopped off on the fourth Wednesday of November.
To answer Smart-Money-Wall-Street's question about what could disrupt the narrative... A shooting war in the Straits of Hormuz; the Chinese sending tanks into Hong Kong and/or selling off a sizable fraction of their US Treasury holdings; the Russians invading the rest of Ukraine; North Korea resuming nuclear weapons testing; a No-Deal Brexit followed quickly by Northern Ireland and Scotland both taking steps to secede from the United Kingdom; Trump refusing to leave office after a decisive defeat in November 2020. Shall I go on?
And if Smart-Money-Wall-Street says that the boom in the bond market has priced-in ALL that geopolitical turmoil, I'll gladly buy that bridge he's selling.
(On borrowed money, of course.)
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@A. Reader
An excellent analysis on your part. I really don't understand these exeperts or how they are regarded as such.
I'm short the S&P 500 to 2750, but my contracts end 9/3, do you have any ideas how I should reposition myself?
SPXW Sep 3rd $2850 Puts
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You lay out all the potential - and plausible - land mines well.
Wouldn't all those nasty scenarios just accelerate the flight to bonds?
Pushing returns higher?
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@Paul King
There are bonds & then there are bonds. Your question seems to be "won't geopolitical landmine explosions drive a flight-to-safety as defined by a flight-to-US-Treasury bonds?" The unifying theme of the geopolitical risks I mentioned is a seizing-up of global trade which would trigger a widespread deep recession. Corporate bond prices would suffer greatly in that case. A "flight-to-safety" equalling a flight to US Treasury debt _assumes_ global investor confidence in (i) the USG capacity to pay interest and repay principal, which would be diminished by falling tax revenues during a severe recession, and (ii) the reliability and quality of US political leadership. If the current administration's brinkmanship on international trade and its toadying to some dictators while provoking others continues, any of the crises I enumerated (among others left to the imagination) could call both into question. In that case, where, geographically, would a "flight to safety" lead?
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How can I be up 13% YTD in treasuries if the yield was only 3%?
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A 10-year Treasury note with a 3% coupon selling in the secondary market for more than its par-value. The same reason why the yield on that note fell below 1.5%. (Reread the 11th & 12th paragraph of the article, or look up the appropriate articles on investopedia.)
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@Matt
Yield is a function of price (fixed coupon on bond divided by price). Bonds have increased in price by 13%, forcing the yield lower (since the coupon on Treasuries is fixed). Historically, yield was typically considered to be the return on a fixed-income investment (i.e. bond), since bonds were considered low-risk, low-return investments used to beat inflation and then some. In this economic environment, every other asset class has had its returns squeezed out via hyper liquidity, forcing investors into bonds and thereby turning it into something of a speculative investment vehicle. To summarily clarify, investors have realized that they will not attain historical returns in more traditional high-return, capital gains based markets (i.e stocks, real estate, ven cap), so they've turned to bonds to offer the same action. This is the last 'free' market they can turn to for arbitrage (one may argue forex, but I'd disagree on the grounds that forex is not and has never been a truly free market since '92 - far too many centrally controlled mechanisms are in place to prevent another Soros-esque run on the market). When investors begin to realize the dearth of returns across all markets and sectors, there will begin a run on every market from here to Timbuktu. That's when the fun begins.
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@Matt
If the yield was (say) 3% before and now you can only get 2.5%, then your investment is worth a lot more percentage-wise. It doesn't mean you will be making 13% more in interest, just that you can make a nice gain selling the bond for a notable increase over what you paid. People have to bid up to get your 3%.
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Ever since the 2008 great recession, and much to the chagrin of professional "traders", many retail investors decided they are more concerned about the return "of" their money versus the return "on" their money. The financial industry has shown itself to be irresponsible and predatory on more than one occasion
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