Bonds Sales Increase Yield, Feed Equities Buys

9 Jan

Amidst all the hoopla from the presidential election, something has been spiraling in the bond market – the amount of investment!

The bond market overall has seen its worst sell off in 13 years, marked by a 5 percent drop between Nov. 1-15, 2016 – that’s one week before and one week after the election.

Some say the sell-off hinged on President-elect Trump’s promise to rebuild our domestic infrastructure, cut taxes and raise trade barriers. The thinking is these policies will drive up inflation and possibly force the Federal Reserve to raise rates more aggressively than expected.

The money isn’t leaving markets overall though. Just two days after Trump’s election victory, bonds shed $1.1 trillion in value, with much of that going towards stocks. Essentially, investors are selling bonds to purchase equities.

Combine these events with the recent interest rate boost and it has propelled treasury yields to their highest levels in quite some time. The 10-year U.S. Treasury bond was in the 1.3 range in July 2016, and it ended the year above 2.4 percent:

As usual with any economic events, this bond phenomenon pleases some investors and displeases others. One thing is certain – for those living on fixed incomes, especially retirees, increased bond yields are welcome news.

Odd Happenings

26 Dec

Since Donald Trump was elected, a few noteworthy things have happened. For instance, the correlation between stocks and bonds is near zero. It’s almost always strongly positive or negative. When the correlation is strong, investors lose diversification. When stocks and bonds are negatively correlated (as they are now), bond yields tend to shoot up. This [...]

Taxes, Regulation and Economic Performance

19 Dec

If people were to pick which issue was most important during the presidential campaign cycle, I bet most would say the economy. After all, the economy is the backbone of American life as we know it. So in that sense, it’s interesting to view modern presidents in terms of economic performance (i.e., GDP growth). John F. [...]

The Government Gravy Train

12 Dec

An October survey of government workers revealed that 27 percent of them would consider quitting if Donald Trump became president, with another 9 percent unsure if they’d quit. Trump said he’d make government smaller and he might just have to show up on day one for it to happen! Of course, such a scenario will [...]

What about the Deficit?

5 Dec

The election is over and the candidates covered a multitude of topics, both serious and nonsensical. But one thing they didn’t discuss was our current deficit. In 2016, we spent nearly $4 trillion. The bulk of it falls into five categories. First is health care, which accounts for $1.1 trillion. Of that, Medicare, Medicaid, and [...]

U.S. Nearing NIRP?

28 Nov

Historically speaking, an average economic expansion lasts 50 months, while an average recession lasts 10 months. The Great Recession ended in June 2009, putting us in the 90th month of expansion. History would suggest we’re nearing the end of this cycle and will see a recession soon, perhaps within the next two years. This is [...]

Real U.S. Tax Rates Near Highest in World

21 Nov

Donald Trump says the U.S. is one of the highest-taxed countries in the world. Hillary Clinton says the rich don’t pay enough. Who’s right? The top American rate is 39.6 percent. Those who disagree with the U.S. being a high-rate country point to Sweden, where taxes can reach as high as 59.7 percent of income. [...]

A Path to Repatriation?

14 Nov

U.S. firms are holding $2.5 trillion in profits outside the country (“offshore”) and saving themselves from billions of dollars in taxes. And they refuse to bring the money home, also known as “repatriation,” because of our 35 percent corporate income tax rate. In other words, firms don’t want to pay a high tax rate at [...]

Obamacare’s Design Flaw

7 Nov

It’s open enrollment season, the time when many Americans choose their health care plans for the upcoming year. Regardless of what happens in the 2016 election, one thing is certain – Barrack Obama will no longer be in charge. But that’s not true when it comes to health care. See, he’ll never be too far, [...]

Data Defies Returns

24 Oct

I’ve said it before – twice actually – but I must ask again. Why is the market going up and up when the hard economic data indicates that the economy should be in or near a recession? Considering the following, the returns become even more unbelievable. For instance, private sector GDP is up a shade [...]