My bias is abundantly clear. We are enduring a Frankenstein economy, one that is propped up through half measures and central bank over planning schemes. When the barrage ends, the facade will collapse and the market with it.
Hence, the accumulation of treasuries by a very wealthy and smart class of investor continues, almost unabated, in spite of the relentless bull market rally over the past 7 weeks.
Your thoughts? Dare I say, this has something to do with it?
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Everywhere else is negative rates and we are still paying some interest? But hasn’t the ark been ripping throughout this entire bull market? I think its so decoupled now because of the fed meddling that its hard to relate it anymore.
I’m going to make a half-witted argument that investors have come full circle to your line of thinking and don’t want to put their money in individual stocks anymore, which leaves ETF’s, bonds, managed mutual funds etc. Speculators are turning into long term investors, babyboomers are retiring wanting safety in their portfolios, while institutions are still searching for a little alpha propping up (with little breadth) other sectors in the meantime.
+1
Love the meeseeks avatar. Anyone who hasn’t seen that episode is missing out.
Square your shoulders Jerry!
the market is not so great, it’s just not the end of the world as everyone seems so eager to predict….for me, the dollar is a better fear and chaos indicator than the ark…if the dollar starts screaming to new highs look out. As an aside, high yield bond funds have made a huge comeback off the lows…. high yield was a leading indicator for trouble in 2015 well before the market followed through to the downside, that’s not the case right now, high yield is strong and the dollar is in a clear downtrend, for now….
Cali, you may be onto something. I looked at the 6 month action between UUP and TLT, and they’ve basically been moving in opposite directions. You would assume they’d have some positive correlation together, due to Dollars having to be used to purchase Treasuries. Something to ponder at the very least.
For all the day to day gyrations of the stock market, we have basically gone nowhere in 16 years. Investing in boring treasuries in the same period, on the other hand, would have beat equities many times over.
The 16-yr period is cherry picking.
You could say the market has done very well over the past 14, or exploded over the past 7, etc.
If you look at a log chart of the SP500, the market is pretty much in line with its 60-year trend.
Lower yields means lower costs of debt, which means lower WACCs when valuing everything, which means higher equity prices… I think lower rates –> higher equity prices. Assuming the economy doesn’t collapse (i.e. slightly negative to modest GDP growth).
I’d be careful with the ark here. Any reversal could be brutal.
And we know that reversals happen before the fundamentals materialize.
Smart class of investor? Like the brilliant 2 and 20 community? Build an Ark? I rather ride along with OA in his new Maserati. Just saying.
We’re caught in muddle along economy where rates must remain low indefinitely. Low rates help make most wealth assets more expensive. They cannot raise rate much because they’ll bring wealth assets down, which will crash the economy. This is a cultural and demographic problem also. The more we move as a people toward angry, purple-haired, nose-ringed socialist the less we produce and the more we complain. We also have less kids, which is also bad for growth.
There is the little problem of lack of jobs that pay a living wage. When people can’t afford food, clothing, shelter on their paycheck, this is a problem. Having more kids in this situation makes no sense either. Plenty of people would like to “produce” if there were living wage jobs available.
What to do? Enter The Donald and Bernie.
Perhaps plenty of people should become “socialists”, because the U.S. does not produce much any more, having lost its manufacturing base. Just try to buy stuff made in the USA. Difficult to do.
I have never met an angry, purple-haired, nose-ringed socialist. And I am a Bernie supporter and know plenty of other Bernie supporters.
But of course, I am aware that painting people who disagree with you as repulsive is the custom in the U.S. polarized political climate.
Let’s raise minimum wage to $15, reduce corporate tax rate to 10%, then cut entitlement programs to zero. What do you say, frog?
The ark is very cozy… my largest position
The government sells treasuries to make money. In order to compete with high yields in equities, the treasury rates have to be competively high. Folks, mutual funds, pensions…they flock to treasuries for high interest rates and low risk. Companies have to fight for investors by offering buy backs and high dividends. Until there is a pullback and pay down of government debt, this cycle will continue and companies will continue to purchase low debt loans to keep afloat. The loans rarely go back into the companies to build up their warehouse merchandise or the employees so that the employees can get out of debt and start purchasing to get the economy rolling. I started building a family ark in 2009. This economy will not screw me again like it did back then.
FWI..he Associated Press (@AP)
4 mins ago – View on Twitter
Powerful earthquake with a preliminary magnitude of 7.1 strikes southern Japan; tsunami advisory issued:
Ark was built with Copper Trim and actually was loaded in early 2014…
Stupid bubble!
The smart money can’t stay in “cash” due to FDIC limits and that’s if they trust the FDIC in the first place. Treasury debt alone offers principal protection for the wealthy. The flood (pun intended) of money into that has a long way to go. Negative rates on the 10yr are inevitable.
I would add that these same people will likely put some % allocation into gold. Gold could see a good run thereby. Problem with that is, once the deflationary asset spiral really gets rolling, gold could get liquidated as well.
We are in a low return environment for years now. With risk-free yields super low the search for yield & return has been strong and enticing. Equity dividends look good even today but they are, one by one, getting reduced…they have to join the overall environment eventually.
+1
Our most important asset is our own marketable skills. So a job is crucial to surviving deflation (that is now). No debt and a small house, some cash. If in business, as few employees as possible. And bonds would be good.
Hi Fly!
The market is going higher bitchez! Deal with it. Long live the US Stock Market!!
You arrived at a funeral of sorts in the comment section…
The German 30 year bond is yielding 0.80%. The Japanese 30 year is yielding 0.39%. TLT is yielding 2.56%. This is why the Ark floats.
The ark floats because technology has a deflationary effect. So does aging demographics. Finally, pikers with massive debt don’t have money to spend.
The ark has been floating lately because it pays interest. And because the stock market mostly does not and has been going sideways. Before that, with QE there was plenty enough money sloshing around to buy both bonds and stocks, so it could all go up.
Frog – I love the simplicity of that statement. It also explains why gold, oil, and all other commodities have gone down… because they do NOT pay interest.
retweeted by hockey guy
Fly, you’re not seeing this thing right. You’ve got the sickest bubble of our generation right in front of you, and you can’t see it. It’s that obvious and I’m pretty disappointed. Just think for yourself for a minute for god’s sake.