As I’ve written about recently, I’ve allocated almost all of my clients’ bond investments to Treasuries and away from corporate bonds the last couple years. This worked well especially early in the pandemic / economic crisis we find ourselves in currently as corporate bonds lost value and Treasuries gained initially. However, it may be time to change tact. Continue reading “Changing Tact and Swimming Naked”
First of all, I hope this finds you well. We say that a lot, but it has such a deeper, intense meaning today, doesn’t it? In any case, I truly hope you and your families are safe.
As for our family, we’re doing just fine. I actually think our middle child, Lexi (6), is going to go back to school far ahead of where she was when they dismissed! She’s been cranking through the math workbooks that Mom got her.
I’ve got so many things I want to talk about that I think are important right now. Don’t worry, I’m only going to focus on one topic here, but it was a struggle to figure out what I wanted to address tonight.
Ultimately, I’ve decided to talk about the bond markets as the stocks markets have, understandably, been getting all the attention. Other topics you can expect in coming days and weeks are: precious metals and gold miners, big picture overview, coronavirus metrics you may not have seen yet, deflation vs. inflation, my market timing strategies’ performance results through this historic decline (preview: they have fared very well). Continue reading “What Have the Bond Markets Been Up To?”
A couple days ago I emailed a commentary about how I’m managing clients’ bond sleeves. As a brief refresher, I’m avoiding high yield / junk bonds and over-weighting Treasury bonds relative to investment-grade corporate bonds. That commentary was very high level focused on the historical performance of each segment during times of economic and market stress. Today, I’m going to get a little deeper into the weeds.
- The credit quality of the investment-grade bond market is deteriorating
- Corporations have been piling on debt so leverage is at all-time highs
- High yield bond prices beginning to roll over
As discussed at length, I have significant concerns about U.S. stock market valuations and what that may portend for the next bear market. After all, the most reliable valuation metrics are indicating the U.S. stock market is more expensive than ever before (including 1929 and 2000).
Although valuations aren’t useful for short-term trading, valuations do provide insight into the potential severity of the next downturn. So whether the next bear market has already kicked off with the January 26th peak or starts 12 months from now, the key to understand is it will likely be commensurate with the extremity of current valuations (i.e. severe).
A couple proactive approaches I’ve offered for consideration to preserve financial independence is either (1) under-weight U.S. stocks in favor of other asset classes, including bonds, and/or (2) incorporate “put options” to insulate portfolios from a significant stock market decline. Today, I’ll focus on what I’m doing within the bond sleeve of portfolios I manage. Continue reading “How I’m Managing Bond Investments At This Stage in the Cycle”