Whenever I want to talk about bonds, I always know just who to call. Larry McDonald is a former bond trader at Lehman Brothers and author of the book, Colossal Failure of Common Sense. I highly encourage you to give it a read, especially if you're looking for some perspective on what really happened back in 2007-2008.
It's no coincidence that I reached out to him to come on the podcast. Larry and I had a very timely conversation in February of last year. So with the bond market recently losing 5-6 Trillion dollars in such a short period of time, who better to talk to than by favorite bond trader.
Some of us are old enough to remember a time when Value stocks were the place to be. The kids these days look at me like I'm nuts when I talk to them about banks and energy stocks!
There's a whole world of companies that used to do great. In fact, early in my career these were the names to be in: BTU, WLT, LEH, MER, BSC..... Good times!
Tech and all that other stuff came much later and has been the big driver in the U.S. over the past decade. But the rest of the world has suffered, without that exposure to Tech and Growth, and instead loaded with banks and natural resources, the worse places on earth for some time now.
Fast forward to today and we continue to get more and more evidence suggesting that it's changing.
It's no longer US over International and EM. It's been EM and International over US. It used to be Growth over value for so long.
Look at last year, for example. By the time the S&P500 finally put in its high in February, everything else had already been falling apart. Small-caps, Mid-caps, Micro-caps, Financials, Transportation, Emerging Markets, New Highs list, Advance-Decline Line, the Value Line Index and S&Ps relative to its alternatives had all been pointing to stocks falling.
There was more data early last year suggesting to be completely out of stocks, and in bonds instead, than before any other crash in stock market history. We discussed this last week.
But even if you ignored all of those factors. And you just looked credit, you would have seen Treasuries significantly outperforming the rest of the bond market. Credit told you:
At the beginning of each week, we publish performance tables for a variety of different asset classes and categories, along with commentary on each.
Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.
Every major asset class on Earth continues to illustrate risk-taking behavior on the part of market participants.
Yields, Oil, Equities, Base Metals, the Australian Dollar -- there's an overwhelming amount of new highs in offensive areas of the market right now. The weight of the evidence continues to suggest that we want to bebuyers, not sellers, of stocks.
Are Energy and Financial stocks about to lead the market?
Cyclical groups are catching all the right tailwinds in this environment.
Crude Oil and Yields are pressing to new 52-week highs as investors continue to favor more economically-sensitive stocks and commodities in general. This is a bullish development and supports higher prices for some of the most beaten-down risk assets... even Financials and Energy.
At the beginning of each week, we publish performance tables for a variety of different asset classes and categories along with commentary on each.
Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.
In last week's report, we played "devil's advocate" and laid out some of the more bearish developments we could find out there.
But all-in-all, the market is still providing bears less room to make a sound argument. We continue to find that any bearish evidence is primarily isolated to shorter timeframes... and even then, still overwhelmed by the abundance of bullish data points.
From the desk of Steve Strazza @sstrazza and Grant Hawkridge @granthawkridge
They say the Bond Market is where the smartmoney is. Maybe it is. I have no idea.
What I do know is that it's where a lot of the smart information is.
Due to the diversity among credit instruments, there is a swath of unique data that we can use not just for Bond prices and Interest Rates but also to glean insight into other asset classes.
I'm talking about things like TIPS for inflation expectations and Emerging Market or High Yield Bonds to analyze risk-appetite for other assets such as the stock market.
Alpha has been in Equities and risk-assets for a while now. As such, we haven't needed to discuss bonds from a portfolio perspective... but that doesn't mean we aren't paying close attention to these assets.
The Bond Market is overflowing with information. We'd be foolish to neglect it.