Stockmarket Sherpas – Breaking Bad on Bonds & Bubbles

“No one remembers who climbed Mount Everest the second time.” – Sir Edmund Hillary  

By Ed Emerson

What’s going on out there?

New bond sales are approaching $440 billion (Dealogic). Those sales are coming in from investment-grade and junk-rated companies, and that figure is up 14% from the prior record set in 2013 for this time of year.

To put that into perspective, the all-time quarterly record is $455 billion (Q2 of 2014). 

So why are investors running to bonds? Are they expecting a market crash? Do they think Janet Yellen and Co will keep rates low forever?

There’s a simple problem here: rising rates, falling bond prices.

In the words of Yves Smith of Naked Capitalism:

“Not that central-bank warnings have any impact on investors. They’re too busy chasing yield. And thus government bond yields continue to bounce along near zero, or below zero. High-grade corporate bond yields are so small they’re barely discernible. Junk-bond yields show that there are few risks out there, even for the riskiest companies in the riskiest sectors. It has taken central banks six years to blindfold investors to risk, and now investors have become addicted to these blindfolds and simply don’t want to take them off. But when they do, possibly all at the same time, they’ll find out that the liquidity they thought would be there for them has just evaporated.”

So how are investors feeling?

Well, consider this from Mike Williams of Genesis:

“Optimism fell to a two-year low according to the latest AAII Sentiment Survey, a sign that individual investors have become more cautious about the short-term outlook for stocks. Pessimism rose to a five-week high, while neutral sentiment remained above 40% for a second consecutive week.

“Bullish sentiment, expectations that stock prices will rise over the next six months, fell 4.4 percentage points to 27.2%. This week’s reading is tied with April 17, 2014, for the lowest level of optimism since April 2013. The drop puts bullish sentiment below its historical average of 39.0% on consecutive weeks for the first time since June 19 through August 7, 2014.”

There’s a lot of fear and trepidation out there. And maybe they all think the US Fed is feeling the same way…long-term.

Someone is on the wrong side of the Stocks vs Bonds table.

So as we start the week think about how you’re going to measure your own perspective on how you choose to invest; on the basis of daily headlines or market facts?

HNW follows a select and growing group of experienced insightful folks out there who we consider to be “Stockmarket Sherpas”: proven guides whose insights merit regular consideration, and their knowledge reaped.

They’re not forecasting the future – there’s enough of that nonsense out there already. They’re setting guideposts. The decision is yours whether you follow them.

This week’s Sherpas (below) are:


“Interest rates aren’t going anywhere…”

The Big Picture – Barry Ritholtz

There are many indicators that keep suggesting that our low, low, low rate world is going to stay this way for a long time. Some of these are turning out to be more significant than many had expected… Read


“When fear creates value and opportunity…” 

Points of Few – Alan Steel 

My thoughts are that the current bull market – while definitely in line for some setbacks along the way – appears to have all the dynamics to give the secular bull in 1982 a run for its money…and yours… Read


“The paint is drying…”

The View from Manhattan – Mike Williams 

Here is the thing…we need to get out of our own way sometimes, be patient and stop “worst-casing” every number that gets spit out of the big giant data machine… Read


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“Bursting the bubble assumptions…”

The Irrelevant Investor – Michael Batnick

We don’t need a crystal ball to be successful investors. However, investing as if you have one is almost guaranteed to lead to sub-par results… Read


“Price and bubble predictions are useless…”

StockTwits – Howard Lindzon

Right now, the animal spirits have been raging in some areas of technology and especially biotech. The same biotechs that our FED chairman #Yellen said were overvalued 47 percent ago… Read


“Will bad news be good news for investors…?”

Phil’s Stock World – Phil Davis 

The expectations GDP report are for 2.4% growth – less than that will signal a weaker economy but that then may give investors the impression the Fed will maintain an easy monetary stance later into the year.… Read


“A look at Warren Buffett’s performance by decade…”

A Wealth of Common Sense – Ben Carlson 

I have never seen Buffett’s performance broken out by decade. These are the annual returns against the S&P 500 starting in 1965 and going through 2014… Read


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