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March 4, 2021
I wanted to share my thoughts on why rising yields are hitting tech so hard.
The core issue here is economic growth. Due to economic re-openings, stimulus, and vaccine optimism, global investors are pricing in a huge jump in economic growth. That is why yields are rising.
And, that expectation of better growth is causing the unwind of last year’s flood into tech shares. During the pandemic, investors poured into tech. They did that for two reasons. First, the pandemic benefitted most tech companies. Second, tech earnings growth is much less sensitive to broad economic growth than other market sectors. So, in 2020, investors who wanted earnings growth had no-where to go but tech, courtesy of the pandemic. That, in turn, sent tech shares screaming higher to historically high valuations.
February 8, 2021
Is there such a thing as too much of a good thing in markets? We’re going to find out.
Stocks rebounded from the GME short squeeze drama of two weeks ago and hit new all-time highs on a familiar cocktail of (1) More stimulus (an additional $1.9ish trillion stimulus plan will become law in about six weeks), (2) Vaccine optimism (JNJ will get approval for it’s single-dose vaccine on February 26), and (3) A generally stable economy (economic data was solid if un-spectacular). As such, stocks surged to all-time highs, exactly as we would expect them too.
January 19, 2021
What a difference a year makes. Last year, about this time, the topic of Modern Monetary Theory (MMT) was being widely discussed by the financial media, and largely disavowed by mainstream economists and government officials, including Treasury Secretary Mnuchin and Fed Chair Powell. Yet in a month we will effectively celebrate the one-year anniversary of the quasi-stealth adoption of Modern Monetary Theory, and it’s only going to get bigger in the months and quarters ahead, and the consequences for assets could be substantial over the longer term.
Given this looming anniversary, and in anticipation of MMT becoming a more common topic of conversation given the new administration, I wanted to take time today to review MMT and explain: (1) What MMT is, (2) Why it’s more familiar than you think, (3) If it’s really that bad and (4) What it means for assets.
On Wednesday, the 10-year Treasury yield declined 5 basis points, the largest decline in several weeks, and the reason for the drop had nothing to do with stimulus expectations, COVID vaccines or central bank talk. Instead, it was because of strong foreign demand for Treasuries at yesterday’s auction, and that helped to underscore a missing ingredient that needs to appear if we are going to see a disorderly rise in yields in the coming months.
Starting with yesterday’s auction, the Treasury auctioned $24 billion worth of 30-year Treasuries (which is just under a record amount) and the demand was very, very strong. The bid to cover, which is a measure of overall demand for the debt, came in at 2.47. The bidding that occurred was aggressive, as the actual yield on the debt was 2 full basis points below the “When Issued” yield (1.82% vs. 1.84%). Finally, and most notably, “indirect bidders,” which are a proxy for foreign investor demand for U.S. Treasuries, bought 69% of the auction, a very high amount. This strong result sent longer-dated Treasury bonds higher, and yields lower, and it is why the 10-year yield closed down 5 basis points.
November 2, 2020
Optimism Drives Stocks in 3rd Quarter
We hope this quarterly newsletter finds you and your family safe and healthy during these unprecedented times.
2020 continued to be one of the most unpredictable years in memory, as markets rose to new all-time highs in the third quarter despite a resurgence in coronavirus cases, as stocks rallied thanks to a combination of even more accommodative Fed policy, hopes for a COVID-19 vaccine and a stronger-than-expected economic rebound, before markets declined moderately from those highs in mid-September.
August 13, 2020
As tech continues to outperform and almost single handedly support the entire market, we’ve been hearing a lot of discussion in the financial media about this being another “tech bubble.” Given that, we wanted to examine the growing number of similarities between now and the late 1990’s.
Yield Curve: We previously pointed out that the August 2019 inversion in the 10s-2s, the swift rebound that ensued, and now sideways trend in the curve strongly resembles what happened in the late 90s before the bubble burst.
August 8, 2020
We began to cover the yield curve much more in depth last year as the 10s-2s yield curve spread threatened to fall below zero (more commonly referred to as inversion). And even though no one could foresee the outbreak of the coronavirus becoming a pandemic that ultimately crippled the global economy, the 10s-2s spread once again accurately forecasted the recession that was triggered by COVID-19.
July 5, 2020
Markets staged a historic rebound in the second quarter driven by an initial peak in the growth of coronavirus infections in April; economic reopenings across the United States and the rest of the world, hopes for a COVID-19 vaccine, and continued stimulus from global central banks, including the Federal Reserve.
June 29, 2020
Americans who have been adversely affected by the COVID-19 pandemic may now be able to access retirement accounts to help cover daily expenses, penalty-free.
An “eye-popping” $2 trillion in cash has been stashed in deposit accounts at U.S. banks since the COVID-19 pandemic first hit the country in January.1
June 16, 2020
Investor sentiment turned negative last week, amid an increasing number of COVID-19 cases in states where reopening has been underway as well as a subdued economic forecast from the Federal Reserve.
We have cautioned that the expectation for a quick economic recovery has driven much of the recent stock market gains, and that if the expectation of a quick recovery was put in jeopardy, we could see a pullback in stocks. That’s partially what happened yesterday as stocks suffered their worst losses in weeks.
The COVID-19 stimulus bill includes relief for retirees by allowing all RMDs due in 2020 to be waived. You do not have to take your RMD, which in turn can reduce your 2020 tax bill.
Anyone with an RMD due in 2020 from a company plan, like your 401(k) or 403(b) plans, or an IRA, qualifies, including beneficiaries, and including those who turned age 70 1/2 in 2019 and were required to take their first RMD by April 1, 2020.
April 2, 2020
First and foremost, we hope this letter finds you, your family and loved ones healthy and safe.
Market volatility surged in the first quarter to levels last seen more than a decade ago during the financial crisis, as the COVID-19 pandemic swept the globe and prompted the partial shutdown of most major global economies, including the U.S., EU and most of Asia. But while the pandemic was the main cause of the historic volatility we’ve witnessed over the past several weeks, the coronavirus outbreak was not the only source of volatility in the markets during the first quarter, as geopolitics and domestic political developments also impacted markets over the past three months.
Feb 4, 2020
Let me start off by saying we will only focus on the market’s political opinion. Our opinion is immaterial and not reflected in this article. Everyone should make their own choice and vote for the candidate that best represents his or her values and interests. With...
Dec 26, 2019
The SECURE ACT (Setting Every Community Up for Retirement Enhancement ACT), was signed by President Trump on December 20, 2019 and set to go into effect January 1, 2020. This retirement legislation will impact many things and many people. We have listed five...
Dec 2, 2019
Stocks continued their relentless grind higher last week thanks to the usual suspect (non-specific, yet positive U.S.-China trade chatter). Yet the most important event of the week happened late-morning Friday and it’s a potentially trade negative, and that’s why...
Nov 22, 2019
Clearing the Fog: Where Are We on U.S.-China Trade? The headline noise surrounding U.S.-China trade and phase one has intensified over the past week, as conflicting headlines on the progress of negotiations are now hitting the tape daily. On Friday, Larry Kudlow...
Oct 18, 2019
Lost in all the focus on trade last week was a pretty significant move by the Fed, as the Fed announced a plan to begin buying Treasury bills every month, a move that prompted several financial news sites and analysts to declare that “QE” is back. But while the plan...
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