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  • Global Bonds In Worst Selloff In 13 Years - How Come?

    Bond investors have had a rough ride in November. The Barclays Global Aggregate Bond Index plunged by 5% during the last two weeks just before and after the election – its worst such drop since March 2003, according to Dow Jones data. When yields rise, bond prices fall, and vice-versa.

    As you know, interest rates have been falling for over 35 years since peaking in 1980. It has been a spectacular bull market for bond investors, that is until just recently. To say that the reversal over the last few weeks came as a surprise to bondholders around the world is an understatement.

    More than $77 billion in assets are benchmarked to the Barclays Global Aggregate Bond Index, according to Morningstar, making it one of the most widely followed in the fixed-income world. It incorporates investment-grade debt denominated in 24 different currencies. Sovereign bonds have historically been the Index’s most heavily-weighted constituent, followed by asset-backed securities, corporate bonds and government-related debt.

    Global bond yields have been edging up since falling to historic lows in late June/July following the UK’s vote to leave the European Union. But the selloff accelerated aggressively after Donald Trump won the US presidential election – an outcome that took most bond market participants around the world by surprise.

    The sharp selloff was predicated on the notion that Donald Trump’s campaign promises to rebuild America’s infrastructure, cut taxes and raise trade barriers, would – if they become reality – drive up inflation, and possibly force the Federal Reserve to raise interest rates much more aggressively than had been expected.

    In just the two days following Trump’s election, global bonds shed an estimated $1.1 trillion in value, the worst rout in a year and a half as investors sold bonds and bought stocks in many cases. The stampede out of bonds propelled US Treasury yields to their highest levels since January.

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  • Global Economic Slowdown - Implications For US Stocks

    The global economy is rolling over to the downside for the most part. The question is, will this global slowdown take the US economy down with it? While no one knows for sure, that possibility simply cannot be ruled out. If the softening in the global economy leads to a slowdown in the US, that will almost certainly result in a weakening of our stock markets.

    In my March 17 E-Letter, I recommended that investors in traditional “buy-and-hold” equity funds reduce stock market exposure (or hedge long positions partially or fully) due to increasing global risks at that time. I repeated that recommendation twice since then.

    Since March 17, the S&P 500 Index has moved sideways to lower as of this writing. Could the US equity markets be setting up for a significant downward correction? It would be unwise in my opinion to rule it out.

    The slowdown in the global economy and the implications for the US economy and our stock markets will be our main topic for today, but before we get to that, let’s take a quick look at last Friday’s unemployment report for July.

    At the end of today’s letter, I will briefly comment on Obama’s new Clean Energy Plan which will raise electricity costs significantly, if enacted, and give you a link to the full story. I will also comment further on the Dodd-Frank law I wrote about in my Blog last Thursday.

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  • Plunging Oil Prices Spark Fears of Global Recession

    Today, we touch on several bases. No doubt everyone reading this noticed that stocks tanked last week, and now seem to be moving in lockstep with oil prices. While consumers welcome cheaper gas and heating oil prices, there is a growing fear that the collapse in oil prices may be a harbinger of a global recession.

    Despite worries that the oil price plunge is pulling down stock prices, the latest Reuters/University of Michigan Consumer Sentiment Index soared to a near eight-year high this month. Expectations for a better job market helped power the Index from 88.8 in November to 93.8 this month, well above expectations.

    Finally, I am sad to report that our national debt topped $18 trillion on November 28 according to the Treasury Department. It was not widely reported by the mainstream media, of course. While our annual budget deficits have come down significantly from the first four years of the Obama administration, we are still on-track to hit a whopping $20+ trillion national debt by 2019.

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  • Global Economy Worsening, But America is on Top

    With President Obama making controversial moves on several fronts this month, it is tempting to go all politics this week. The president is threatening to grant defacto amnesty to five or six million illegal aliens, via Executive Order, even though he knows this is unpopular among the American people. It’s as if he’s in full denial regarding the landslide midterm election results.

    In addition, he signed a controversial climate deal with China that will hurt the US economy and allows China to continue building more coal-fired power plants and increase emissions annually until 2030. Obama and the media hailed it as one of his landmark accomplishments. It wasn’t.

    At the Asian summit he attended last week, Mr. Obama pledged to give $3 billion of US taxpayer money to emerging countries to help them work toward clean energy and tackle climate change. Hopefully, Congress will block that pledge.

    And if you missed it, Obama announced last week that he wants the federal government to regulate the Internet. That would be a disaster! More details as we go along today.

    But rather than devote the entire E-Letter to politics, let’s start with a new report on the slowing global economy. According to the latest survey from Bloomberg, the global economy is in the worst position in two years. Fears of deflation are growing in Europe and elsewhere.

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  • 6.7 Million “Missing Workers” – Where Did They Go?

    Today we will touch several bases. We begin with last Friday’s unemployment report which was hailed by the mainstream media, but had a lot of bad news to go with the good. From there we look at the estimated 6.7 million “missing workers” in this economy and ponder if they’re permanently gone from the employment rolls.

    Next we look at the latest Gallup poll showing how many Americans rate the economy as excellent, good, only fair or poor. You may be surprised at the results, which aren’t immediately clear in the chart. Following that, we look at some interesting data on mutual fund money flows which show that the love affair with bonds continues, and investor demand for stocks is waning.

    Finally, the International Monetary Fund downgraded its global economic forecast recently, including its forecast for the US and most of Europe. I have included the IMF’s graphic that lets you look at each country’s forecast for 2013 and 2014.

    By the way, we have a lot of charts and graphs today, so the letter will print longer than usual.

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