Bonds 04 (Jul 15 - Aug 17)

[winston]

Taking a Move Out of Denver’s Playbook

By Harry S. Dent Jr.

The best offense is a good defense. I don’t know who first said that, but the Denver Broncos just demonstrated it as well as anyone in last night’s Super Bowl.

My point, of course, is that offense is never enough. You need both offense and defense in any game or business, and the same applies to investing.

And it’s paramount today as we’re facing off against the most formidable opponent in our lifetimes: the economic winter season.

For those not familiar with my 80-Year Macroeconomic Cycle, the economy follows four seasons much like we see in the weather every year.

Think of it in terms of inflation, which is like temperature in the economy. Mild inflation comes in the spring and fall and that’s when the economy does best. High inflation comes in the summer (think the inflation crisis during the 1970s). And today’s deflationary period is like the declining and freezing temperatures of winter, which brings its own crisis that is much, much more severe.

People keep asking me what they can do with such a bearish forecast. Certainly their high-dividend, less-cyclical multinational stocks will be okay, right?

My response: I wouldn’t count on it! And that’s coming from a guy who used to be one of the most bullish forecasters in history. Back in the late 1980s when I had my breakthrough in demographic cycles, I was positive on the economy because I knew we were facing a long-term boom. But today, I’m one of the most bearish forecasters because I see what’s coming down the pipe!

Many years ago, I went back through the last winter season focusing primarily on the 1930s – the worst crash and depression in U.S. history. I was thinking there must have been some stock sector that did well. Utilities, phone companies, booze, cigarettes, gambling, consumers staples, something! But no – all of those sectors fell. Some fell worse than others, namely automobiles, but not a single one escaped the carnage that ensued.

And even for the most stable companies, it wasn’t because their sales and earnings fell. Rather, it was the fall in their price-to-earnings (P/E) ratio. When fear sets in, investors price in the worst scenario for everything. Even when adjusted for dividends, stocks suffered a 20% loss for the decade. At their worst in July of 1932, they were down 89%!

Real estate bubbled less and so therefore fell less, but still had a slightly negative return for the decade. And commodities… forget about it!

But this is where a good defense would have helped. The one sector that did well (with minor volatility to boot) were the highest-quality, long-term bonds… which is about as defensive as it gets!

Look at the chart:

See larger image

Long-term Treasurys nearly doubled counting their yields, and AAA corporates more than doubled in the worst decade for stocks and the economy ever.

How’s that for a strong defense?

So my advice to you is this: be like Denver. This is not the time to rely solely on offense. Now’s the time to bring out your best defense and conquer the crash ahead.

I’m still looking out for a spike in Treasury bond yields this year when Sovereign bonds in Europe and other countries face the reality of default. Italy in particular now looks like the next Greece or Cyprus. They’re “too big to fail,” and you know what that means.

Source: Economy & Markets

[winston]

There are now $7 trillion of government bonds offering yields below zero across the world.

Source: Bloomberg

[winston]

Negative Yields

After the Bank of Japan introduced negative interest rates a couple weeks ago, today the 10-year Japanese bond followed into negative territory.

Now, $7 trillion, or more than a quarter, of the world’s bonds sport negative yields.

With so many negative rates, U.S. Treasurys remain attractive among global competitors, but on Monday the 10-Year Treasury dropped to a one-year low, hitting as low as 1.68% in intraday trading.

This time last month, it was 2.17%.

Source: Economy & Markets

[winston]

Edward Altman: Risk in High Yield Market at 2007 Levels; Not Isolated to Energy

Edward Altman, Professor of Finance at New York University's Stern School of Business and a leading authority on the high yield and distressed debt market, says to expect more defaults this year and next ,with the average health of companies issuing high yield and investment grade bonds as risky today, as they were in 2007, right before the last crisis.

He also told Financial Sense that problems in the high yield space are no longer isolated to energy and mining and have undoubtedly spread to other parts of the economy.

Source: Financial Sense

http://www.financialsense.com/contribut ... isk-levels

[winston]

Bonds (10 year): 1.75% versus 1.64%.

Gapped lower after gapping Thursday.

Kind of island reversal-like after clearing the March 2015 high and taking aim at the January 2015 peak.

Tremendous move the past six weeks, so some retrenchment makes sense.

Source: Investment House

[behappyalways]

Bond guru Gary Shilling thinks the 10-year Treasury yield is heading to 1%
http://finance.yahoo.com/news/bond-guru ... 41221.html

[winston]

Muni bonds outperform… sector fund IIM rises 15%-plus since July.

[winston]

Sudden Death? Junk-Rated Companies Headed for Biggest “Refinancing Cliff” Ever: Moody’s

By Wolf Richter

Source: Zero Hedge

http://www.thetradingreport.com/2016/02 ... er-moodys/

[winston]

Singapore Lawyers Warn of 1998-Like Pain as Debt Defaults Spread

by David Yong

`A while before any significant recovery' Rajah & Tann says

Banks likely to boost sales of soured loans: Hogan Lovells

Source: Bloomberg

http://www.bloomberg.com/news/articles/ ... lts-spread

[winston]

Reducing Risk and Volatility: A Historic Opportunity to Buy

By Steve McDonald

Source: The Oxford Club

http://wealthyretirement.com/videos/red ... ?src=email