The Bad News is Interest Rates Increased. The Good News is Interest Rates Increased.

Bond prices go down when interest rates rise and vice versa. How is that? Well, think of it this way.

Imagine you bought a 10-year Treasury bond with $1,000,000 at the end of last year when the interest rate was 1.5%. That implies $15,000 of annual interest payments over the next ten years until maturity at which point you also get your $1,000,000 principal back.

However, the interest rate for 10-year treasuries has since risen to ~3.5%. So, who’s going to want the 1.5% bond when they can go buy essentially the same 10-year bond and get 3.5%? Nobody. Therefore, the price of the 1.5% bond must fall to attract buyers so that the yield-to-maturity is aligned with prevailing interest rates. Continue reading “The Bad News is Interest Rates Increased. The Good News is Interest Rates Increased.”

Why We Own Treasuries

I started writing this note early yesterday before the wild market action prompted by heightened concerns about Russia potential invading Ukraine.

The purpose for the note was to address why we own Treasury bonds, especially considering that they are down simultaneously along with stocks for the year thus far and don’t seem to be providing any benefit.

Then stocks fell off a little cliff yesterday to lose about 2% on the day and Treasuries made around 1% thereby answering the question for me. Continue reading “Why We Own Treasuries”

What Have the Bond Markets Been Up To?

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?”

NOW It’s An Official Bear Market. Some Thoughts…

It’s official, the U.S. stock market has been in a bear market since it’s all-time closing high on February 19, 2020. Yesterday, the U.S. market had it’s worst day since Black Monday 1987 (market lost over 22% in a single day).

  • This is the fastest retreat to a bear market from an all-time high in history taking just 16 trading days.
  • This ends the bull market that began with the cycle low on March 9, 2009 for an eleven year run and 400% price appreciation. That run makes it both the longest and strongest bull market on record!
  • The S&P 500 is down about 27% from its 2/19/2020 all-time high as of yesterday’s close, which is a level first seen on August 7, 2017 essentially wiping out 2.5 years of appreciation.
  • The market would have to climb over 36% from yesterday’s close to get back to the all-time highs.
  • For contrast, the foreign stock market (MSCI All Cap World Index) has been in a bear market since January 26, 2018 and is only up about 60% from the March 9th, 2009 lows.

Yesterday, sentiment hit EXTREMELY low levels with CNN’s Fear Greed Index at a record low of just 1.

Continue reading “NOW It’s An Official Bear Market. Some Thoughts…”