Charles Darwin: "It is not the strongest of the species that survives, nor the most intelligent, but rather the one most adaptable to change."
很愛&感謝股市帶給我的各種學習機會, 以及人生道理與哲學. 並一再提醒我自己的渺小. 淋漓盡致.
這裡記錄了我投資的心路歷程, 以及人生修行. 因為很多文章算是給自己的筆記, 所以內容有些雜亂, 中英文也混雜, 請包涵.
As good as the year has been for the stock market, it’s arguably been even better for bonds. That’s the good news for fixed-income securities investors. The bad news is that they face a risk of reversal perhaps as great, if not greater, than equities do. But history suggests that stocks should be able to ride out a backup in the bond market.
The drop in long-term yields has driven bonds’ robust performance. The benchmark 10-year Treasury note’s yield is down to 1.76% from 3.04% 12 months ago, while the 30-year bond’s has fallen to 2.23% from 3.31% over that span. For the long end of the market, that’s translated into strong price gains, as exemplified by the 24.50% total return from the iShares 20+ Year Treasury Bond exchange-traded fund (ticker: TLT) over the past 12 months, which topped the 19.42% from the SPDR S&P 500 ETF (SPY), according to fund tracker Morningstar.
But as bond investors have enjoyed those sparkling returns, they have taken on a lot of duration risk, says Mark Vaselkiv, the chief investment officer for fixed income at T. Rowe Price. Duration describes a bond’s price sensitivity to changes in yields; longer durations mean bigger swings and thus greater risk. That worked in investors’ favor in the past year, as yields fell. But a rebound in yields could inflict “a fair amount of pain” on those who have piled into longer-term high-grade securities, he notes.
Indeed, bond investors should be prepared for a “baby bear market” in 2020, according to Goldman Sachs strategists. They look for a rise in the benchmark 10-year Treasury yield of about 50 basis points (one-half of a percentage point), to 2.25%. For the 10-year note, that would translate into a price loss of about 4%—more than twice its annual interest income. For a 30-year bond, the price drop would be about 10% for the same 50-basis-point rise in its yield.
Part of the reason for the decline in yields over the past year has been the long-term fall in the term premium—the extra inducement that bond investors require to lock in their investments over extended periods. For instance, if the 10-year note yielded 2.5% and investors expected short-term rates to average 2% over the next 10 years, the term premium would be 50 basis points.
The term premium has been negative the past few years, according to the Federal Reserve Bank of New York’s estimates. In fact, it is now the most negative since the data series began in 1961, Torsten Slok, chief economist of Deutsche Bank Securities, points out.
A normalization of the current term premium could raise the 10-year Treasury’s yield back to 2.50%, writes Nikolaos Panigirtzoglou, global market strategist at J.P. Morgan. And such a normalization occurred in the mid-1990s, after the Fed also lowered short-term rates three times as a “mid-course” adjustment.
Goldman’s strategists similarly cite the history of the Fed’s 1995-96 and 1998 mid-cycle adjustments in predicting a rise in the depressed term premium. A year after the 1995-96 cuts, they observe, the 10-year yield had risen by 90 basis points; a year after the 1998 cuts, it had increased by 150. And while the Fed has signaled that it expects to keep its short-term federal-funds target rate unchanged after last month’s third 25-basis-point cut, to 1.50%-1.75%, Goldman says that history indicates that, once bond yields turn higher, the market begins to price in rate hikes by the central bank.
Such a move could be painful. J.P. Morgan’s Panigirtzoglou estimates that investors’ allocations to bonds are at historic highs and well above their post-financial-crisis averages. At the same time, the bank’s calculation is that a rise in the 10-year Treasury yield to 2.50% would lower the fair value for the S&P 500 index by just 2.4%, from its current estimate of fair value of 3355, which is 8% higher than Thursday’s close.
The Treasury note’s price would slide by about 6%, or twice as much as the S&P 500 in that scenario, which is why our colleague Andrew Bary contended that Treasury bonds are now riskier than stocks in this space a few months ago. Moreover, given their low yields, which don’t have much room to fall further, bonds are unlikely to provide as strong a hedge to stock-market declines as in past cycles, argues Adam Levine, investment director for pensions at Aberdeen Standard Investments.
That doesn’t mean there is no place for bonds to hedge a portfolio—only that the bonds used for this purpose should be municipals, which also could provide some protection against higher taxes should Elizabeth Warren become the next president. That’s the view of John R. Mousseau, president, CEO, and director of fixed income at Cumberland Advisors.
In addition to her proposal for the ultrarich to kick in “two cents” in a wealth tax, the Massachusetts senator has called for higher marginal income-tax rates. What the top rate, now 37%, would be depends as much on the makeup of Congress as on who wins the White House. But Mousseau expects that it would be higher than the 39.6% under President Barack Obama. He also notes that there’s already a 3.8% Medicare tax on investment income for families whose yearly modified adjusted gross income exceeds $250,000.
All of which would make the tax-exempt income from munis more valuable, and thus boost these bonds’ prices. For those in the current top 37% bracket, a 2.33% tax-free yield (which prevailed when these calculations were made) on a 30-year AAA muni is equivalent to a 3.70% taxable yield. If the top income-tax rate goes to 42%, the payout would be equivalent to a 4.02% taxable yield. As the market adjusts to that higher taxable-equivalent yield, Mousseau estimates the bond’s price would increase by 7.16%.
Of course, long munis would be hurt, along with Treasuries, if their yields were also to rise. But tax-free bonds at least would provide some hedge.
Fall back? Those who crave an extra hour’s sleep
welcome turning back the clocks to standard time this weekend. For others,
darkness falling when the clock strikes an hour earlier is depressing (except
if it means that cocktails will be served sooner).
For the stock
market, it’s more about springing forwardas
it enters what’s historically the best six months of the year, with the major
averages already at or close to historic highs. And that’s with a trade war
hitting global commerce and
an impeachment drama hanging over the nation’s capital. That’s even without a
looming U.S. election, which is all but certain to be hugely divisive, both at
the presidential and the congressional level. Call it prosperity without
500 index and the Nasdaq Composite closed at records on Friday, up 1.5% and
1.7% this past week, respectively, while the Dow Jones Industrial Average rose
1.4% but landed 0.04% short of its record. Looking at the performance through
the year’s first 10 months, the S&P posted a
total return (including dividends) of 23.16%; the Nasdaq, 26.06%; and the Dow,
18.19%. The year-to-date numbers are flattered by timing because the risk
markets (equity and speculative-grade debt) bottomed around the end of 2018. On
a 12-month basis, the S&P’s return is substantially lower, but still
impressive, at 14.22%, along with the Nasdaq’s 14.77% and the Dow’s 10.32%.
That’s a product of an economy and earnings that
are growing moderately, along with a shift in monetary policy that’s now pushing
forward, rather than pulling back. Interest rates have come down, with the
Federal Reserve this past week reducing its policy rates for the third time in
2019, while the dollar has fallen 2% from its peak at the end of September.
That’s not only a plus for U.S. exporters, but for emerging markets, which have
made 47 interest rate cuts of their own in the past year, according to Evercore
If there’s a
fly in the ointment (and there always is), it’s that so much of the market’s
gains and aggregate value have been concentrated in megacap technology stocks,
such as Apple (ticker:AAPL), Microsoft (MSFT), Amazon.com (AMZN), and Google
parent Alphabet (GOOGL)—a total of $4 trillion,
or more than all of the Russell 2000 small-cap index. That said, breadth—the
number of advancing stocks versus decliners—on the New York Stock Exchange also
is at a peak, indicating relatively broad participation in the major indexes’
march to record highs.
The markets stand at these exalted levels as they
head into their strongest seasonal period, based on history, according to the
Stock Trader’s Almanac. The advisory’s technical indicators actually marked
Oct. 11 as the start of that season this year (the date happened to coincide
with the Fed’s announcement that it would alleviate the liquidity tightness in
the money markets by purchasing Treasury bills).
fundamentals also are positive for the market, as represented by the October
employment report released on Friday. Nonfarm payrolls rose by 128,000 last
month, much more than the 85,000 economists had forecast after adjusting for
the strike at General Motors (GM). Automotive payrolls
were off by 42,000 in October, while government employment fell by 3,000, owing
to a reduction of 20,000 temporary census workers. Moreover, the two preceding
months’ tallies were revised up by a total of 94,000. The unemployment rate did
tick up, to 3.6% in October from the half-century low of 3.5% touched in
September, but that also was a sign of strength, reflecting a continued surge
of people entering the labor force.
On the political front, the House of
Representatives voted for a formal impeachment inquiry of President Donald
Trump. While polls find the public split pretty much down the middle on
impeachment, the folks at Renaissance Macro observe that in the 1990s a strong
economy during the Bill Clinton impeachment provided the backdrop for that
decade’s bull market. Plus, the Fed then also made “insurance” cuts in its
rates to sustain the expansion in the absence of inflation pressures, as is the
Past isn’t always prologue, but the current
situation—notably an elongated expansion backed by a friendly Fed, played out
against a contentious political backdrop—suggests parallels with the 1990s. One
difference is the recent culling of some egregious excesses, such as the crash
and burning of WeWork, before they reached the public markets.
RenMac suggests bringing back the ’90s grunge group
Nirvana. Smells like bullish spirit.