Leveraged and Inverse Funds

The Kansas City Fed’s annual Monetary Policy Symposium at Jackson Hole is a signature event for those of us who follow central banks. The conference typically doesn’t generate much front-page news: the subject matter is usually more technical and conceptual than a broad audience would appreciate. But 2020 is not a typical year.

The investment grade fixed income market has been unusually active in 2020. Initial concerns about Covid-19 triggered a sharp selloff, but sentiment abruptly reversed when the Fed announced plans to purchase corporate bonds. Spreads have nearly returned to their pre-pandemic levels, but not all sectors have recovered equally, creating interesting opportunities for savvy investors.

This morning's employment report for August showed a 1.37M increase in total nonfarm payrolls, which was slightly below the Investing.com forecast of 1.4M.

The Georgetown professor and former PIMCO economist says democracy will have failed if the strategy continues working for decades.

You know it’s a bubble when you have to edit the Y axis on all of your charts because valuations have broken above every historical peak, and estimated future market returns have fallen beyond the lowest points in history, including 1929.

Led by technology and large-cap companies, the S&P 500 is on pace to post its best summer performance in over 80 years.

Despite reaching all-time highs above $2,000 per troy ounce this summer, gold prices might still have room to run, according to Franklin Equity Group’s Steve Land. In addition, he shares some reasons why the current environment could present new opportunities for gold-focused miners to redefine themselves as stronger businesses.

In a new quarterly letter to GMO clients, head of asset allocation Ben Inker highlights the sea change in the utility of government bonds and Matt Kadnar, member of GMO’s Asset Allocation team, weighs in on today’s low bond yields.

The data used to measure a company’s compliance with ESG guidelines is inconsistent and leads to misleading results. Moreover, when teams at the same company manage comparable ESG and non-ESG funds, the former more often underperforms the latter.

The accompanying chart is a way to visualize real GDP change since 2007 and uses stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. Here is the latest overview from the Bureau of Labor Statistics.

As we have been discussing, this past week, the S&P 500 index set an all-time high. Importantly, the breakout to all-time highs confirms the 35% decline in March was only a correction and not a bear market. The implications are important as the change of definition suggests a bear market still lurks for the full-market cycle to complete.

This week, we continue with a bullish tilt toward equity positioning as the SPDR S&P 500 ETF (SPY) and the QQQ Trust (QQQ) trade at new all-time highs.

The current environment may be more uncertain and riskier than any we have seen in our lifetimes. Yet, corporate bond spreads say the future has never been more certain.

Although many suggest that wealth inequality is attributable to globalization and technological advancements, what they miss is the role of speculative finance and the complicity of the central bank in driving this process.

The lodging industry illustrates a panoply of pandemic problems; and keeping people in their homes will be key to economic recovery.

As a result of the Federal Reserve’s efforts to shore up credit markets, the leveraged credit sector has delivered stellar performance since the lows in March.

"Travel on all roads and streets changed by -13.0% (-36.5 billion vehicle miles) for June 2020 as compared with June 2019. Travel for the month is estimated to be 244.7 billion vehicle miles." The 12-month moving average was down 1.22% month-over-month and down 7.6% year-over-year. If we factor in population growth, the 12-month MA of the civilian population-adjusted data (age 16-and-over) was down 1.27% month-over-month and down 8.0% year-over-year.

FINRA has released new data for margin debt, now available through July. The latest debt level is up 5% month-over-month.

Research Affiliates discusses the increase in portfolio tactical shifts and recent research efforts supporting the All Asset strategies in today’s evolving investment environment.

Imagine if you had a meter to measure the positive energy in your firm. How often would it be buzzing off its hinges at full tilt toward positivity?

Everybody is wondering how the stock market can be so high while the U.S. economy is so low. But you don’t hear the same rumbling concerns about the bond market – even though something very similar to ultra-high P/Es is going on in the fixed income side of your portfolio.

When it comes down to it, there are a few key macro variables that are highly correlated with the relative performance of value vs growth – most of them measuring the reflationary impulse in the system in different ways.

Soros’ view on the pattern of bubbles is interesting because it changes the argument from a fundamental view to a technical view. Prices reflect the psychology of the market, creating a feedback loop between the markets and fundamentals.

Whatever happens with Covid-19 and how we ultimately deal with it, be it a vaccine or medication or a change in behavior, we will adapt individually and together as a society.

Eight advisors describe the worst money moves they’ve witnessed clients make in a recession.

Cash may still be king, but cashless commerce is rapidly becoming the new king. The revolution in digitalization of commerce is already generating growth in transaction value of roughly 24 percent per year over the last three years.

In recent months, investment-grade debt has experienced a ferocious rally. What’s next?

This week we drill down on the trends in the US equity market as the SPDR S&P 500 ETF (SPY) puts the February highs in its sights. The trends across the major market ETFs remain to the upside.

If you pride yourself in your service, I challenge you to answer this question …

To scale your business, you can’t rely on your personality alone to carry you through; you need to intentionally and systematically make sure more of your ideal prospects have the opportunity to get to know, like, and trust you every day.

Closed-end funds are known for leveraged income generation, but yields can come from a range of sources, strategies and products. John Cole Scott, founder of the Active Investment Company Alliance and chief investment officer of CEF Advisors, offers his perspective on the current CEF landscape and challenges presented by the coronavirus, not to mention the presidential election and recession recovery. Scott also shares his excitement about the AICA online CEF conference on Aug. 13, featuring the “best and brightest” minds in the CEF industry.

This week I did a complete re-read of Joel Greenblatt’s classic “The Little Book That Beats The Market.” For any of you that are not familiar with the book, Joel Greenblatt presents his magic formula for picking stocks that his research indicated will beat the market most of the time.

We have a big economic calendar with reports on inflation, small business optimism, retail sales, consumer confidence, and unemployment claims. I expect the data to continue occupation of the back seat.

One explanation for the underperformance of the value factor has been that the growing importance of intangibles, and the failure of the accounting system to record their value on financial statements, renders value measures anchored to current financial statements, such as book value, useless. New research shows how to address this failure.

Municipal Bond Closed-end Funds, like most investments, have felt the impact of the coronavirus-stricken economy. But Dave Lamb of Nuveen says Muni CEFs have rebounded well, especially those with higher quality credits. Despite potential concern of a recession-driven shortfall of taxes supporting munis, Lamb is optimistic about the future. He says it’s an “opportune time to invest in closed-end funds.” He expects discounts to continue to narrow and notes the low cost of leverage has helped lead many funds to increase distributions.

Treasury Inflation-Protected Securities can help protect your portfolio against rising inflation, but there are nuances you should understand.

Several months into the Covid-19 era, Howard Marks takes a step back to consider the global health crisis, the economic fallout and the U.S.’s response to date. He also shines light on how one might – or might not – view the current circumstances in the framework of a market cycle.

Have you ever noticed that Mother Nature always wins?

There’s a small portion of the bond market that investors may have overlooked in the past, but should now consider—the taxable municipal bond market.

The U.S. economy contracted 9.5% through the second quarter, the worst single-quarter decline in gross domestic product (GDP) since the Commerce Department started tracking it in 1947. It was expected the report would show a dip, but it’s important to recognize what that dip represents.

Looking across the global opportunity set, we see potential for attractive yield, though uncertainties surrounding the global recovery suggest this is a time to be cautious.

We explore the increased use of engagement terminology by fixed income market practitioners as a part of their ESG integration efforts.

The Loomis Sayles Alpha Strategies Team answers three questions on corporate health, regime models and opportunities in emerging markets.

I give these brilliant investment strategies a failing grade.

Among the many significant developments in the world that investors should be considering as part of their long-term thinking, one of the issues that concerns me the most is China.

US Investment-grade corporate bond issuance has rolled past US$1 trillion so far in 2020. What are the long-term effects of this explosive borrowing?

Digital transformation was already underway prior to the COVID-19 pandemic, but the resulting economic crisis has caused an acceleration, according to Franklin Equity Group’s Jonathan Curtis. He shares where his team is looking for potential opportunities within technology during the current period and beyond.

Markets rebounded during the second quarter, aided by monumental support from the Fed. We expect the economy to continue improving, but given the recent wave of Covid cases we also expect some bumps along the way.

Does 9 times higher yield in EM than in US bonds make for an attractive investment proposition? We lay out the arguments. 

There has been a growing concern over Technology stocks as investors “Party Like It’s 1999.” While no two periods are the same, the outcomes often are. For longer-term investors, if we are amid another “Tech Bubble,” the biggest challenge is navigating it and “living to tell about it.”

The U.S. and EU deliberate how to disburse aid, China’s recovery carries risks, and U.S. mortgage rates find a floor.

As we get to the end of July, we are entering the "heart" of the Q2 2020 earnings season, one of four such seasons we encounter on an annual basis. We typically find that earnings season produces some added volatility and potholes for investors to avoid.

Applying the definition of factor robustness that was established by our Research Affiliates colleagues in a 2016 award-winning paper, we determine ESG is not a factor. Nevertheless, the importance of ESG as an investing strategy is undeniable. We explore how greater clarity around defining ESG can quicken the pace of ESG integration in equity portfolios.

While we appear to have averted the worst pandemic outcomes so far, a resurgence in recently reopened states shows that we are not yet out of the woods. In our view, the economy will not fully recover until there is a vaccine or a reliable treatment.

First quarter 2020 saw the U.S. economy in a tailspin; second quarter pulled out of it … but now is the recovery stalling?

Markets thus far in 2020 have been, to use an overused word, unprecedented. In a matter of months, we have witnessed economic and market moves that typically take an entire market cycle of many years to unfold. So, we truly do see 2020 as a year when investors are gaining “dog years” of experience.

A year ago, you couldn’t get Wall Street to touch most gold miners’ stocks. Today, it’s throwing billions at the industry.

The start to earnings season was not all that exciting as the banks were met with mixed reviews that saw the trading shops put up outsized profits thanks to the explosion of volatility in the quarter and the Fed backstopping the credit markets.

With the US dollar index recently having completed a so called “death cross”, we thought it would be a good opportunity to review the investment implications of a potential trend change in the USD.

U.S. stocks have been fairly resilient lately, even as coronavirus hotspots flare up around the country. Although consumers and businesses are increasingly worried about rolling shutdowns, major stock indexes generally have moved sideways. How long can this continue? Much depends on the shape of the economic recovery.

This review will explore why passive investing may not provide the bargain most advisors think they are getting for their clients. This is especially important as most managers have underperformed their benchmark YTD with such cyclical market performance. Although difficult to find, investors should still seek out skilled managers that stick to quality investment philosophy and process.

I’ve seen many examples of how advisors make themselves more interesting, but here are three best approaches that have a big impact.

At LPL Research, we know the stock market is forward-looking: It focuses on what’s happening today and what it sees on the path ahead. Much of the real-time economic data we follow—such as transportation activity, home sales, and jobless claims—is showing tangible evidence that economic activity—while still depressed—has begun to make a comeback.

Imagine telling clients you’re their guru, guide and gladiator. Learn a simple framework to help articulate your distinctive value.

The economic calendar is extensive with a focus on housing and consumer behavior. Expect market participants to look for any sign that the economic recovery is stalling in the face of the COVID-19 surge and the slower pace of reopening.

The value of this year’s annual hedge fund performance survey was turned on its head when a pandemic shut down the global economy and sent securities plummeting. But a deeper look at consistently performing funds revealed managers that as a group have largely been able to weather the storm better than the market and their peers.

Saying that extreme stock market valuations are “justified” by low interest rates is like saying that poking yourself in the eye is “justified” by smashing your thumb with a hammer.

Today we’ll look at the data, including some non-government sources. As you will see, millions of workers will stumble through this period, and they may be the lucky ones.

In a new white paper, the GMO Emerging Markets Equity Team argues that Emerging Markets in aggregate are more resilient today than in prior periods, an important consideration as investors evaluate the rebound the asset class has experienced since late March.

As we enter credit repair, we are wary of using the global financial crisis as a benchmark for the path to recovery. We see several key reasons that suggest this time will be different.

Be wary of these five common copywriting mistakes I see advisors make on their websites.

The pandemic has created an extraordinary risk/return trade-off for the shares of high quality U.S. banks. We believe there is the potential for decent returns for bank investors without improvement in the current environment, and the potential for enormous returns if the rate of change in the economy remains positive.

The COVID-19 pandemic has brought major changes to how advisors are working with clients, especially based on the comments we received during our recent webinar, “How the Pandemic Has Changed Advisory Practices.”

Pricing dislocations and adjustments between companies, industries, regions and asset classes due to the impact of COVID-19 offer opportunities for select hedged strategies, according to K2 Advisors.

If you missed Part-1 of our series on the “Theory Of MMT Falls Flat When Faced With Reality,” start there. In Part-2, we complete our analysis of the theory and the potential ramifications. The premise of our discussion was this recent explanation of “Modern Monetary Theory” by Stephanie Kelton. As discussed previously, economic theory always sounds much better than how it works out in reality.