US States to Sue S&P…The Great Rotation Debate…Bernanke Wants You to Buy Stocks…and more!February 4th, 2013 by Simon G
WSJ: – US States plan to file civil charges against S&P. – The Justice Department and state prosecutors intend to file civil charges alleging wrongdoing by Standard & Poor’s Ratings Services in its rating of mortgage bonds before the financial crisis erupted in 2008, according to people familiar with the matter.
The Reformed Broker: – The great rotation debate. – Ray Dalio of Bridgewater, known as one of the most brilliant global macro investors in history, understands what many commentators do not. – That the great rotation (when it happens) is not just a bonds-to-stocks phenomenon. It is a cash-to-everything story predicated on the positive feedback loop of returns elsewhere and the relatively destructive long-term returns on cash and super-short-term fixed income.
Rick Ferri: – Uncle Ben wants you to own stocks. – Federal Reserve Chairman Ben Bernanke wants you to own stocks and he is doing everything in his power to compel you. This isn’t a bad thing. The stock market will likely continue higher thanks to recent Federal Reserve policies. Their decision to keep interest rates below the inflation rate is driving equity valuations up out of necessity, and this trend will likely continue for the foreseeable future.
LearnBonds: – Will this five star fund continue to thrive after the PM departs? – The Fund in question is Delaware High-Yield Opportunities Fund (DHOAX), which received a 5-star rating from Learn Bonds in early December of 2012. While the fund’s performance has been volatile, historically it has outperformed its peers over 1-, 3-, 5- and 10-year time periods.
Bloomberg: – Bill Gross: US credit expansion a financial supernova. – Bill Gross, PIMCO CIO & founder, discusses the expansion of credit in the United States over the past 40 years and how equity and credit investors are leery of another 2008 moment.
WSJ: – Bonds may now be riskier than equities. – Strong retail mutual fund flows have traditionally been an indicator that underperformance is more likely than not. Why is this? Fear causes investors to miss attractive entry points in market downturns, while greed motivates investors to buy more as prices reach lofty levels. Thus when a strong mutual fund flow trend develops, it usually is a sign of fear or greed motivating investors. The question remains, however, is now the time to dive in the stock market?
Minyanville: – What’s driving intense volatility in the bond market? Three possible explanations. – Equity investors went home this past weekend feeling pretty proud of themselves. For many who recently (and finally) gained net exposure to the market and after a blistering January, stocks started February with a robust 1% gain. The sentiment has improved not because economic conditions are better but rather because prices are higher.
WSJ: – New worry for bondholders. – Corporate-bond investors are facing a new threat: private-equity firms launching debt-laden takeovers of companies in their portfolios.
Bloomberg: – JPMorgan confronting BofA-led bond bears on loss. – The biggest investment-grade bond loss in 14 months is bolstering Bank of America Corp. (BAC)’s view that the unprecedented bull market in the notes is over. JPMorgan Chase & Co. disagrees.
Bloomberg: – Texas water agency sells market-beating debt. – North Harris County Regional Water Authority in Texas is selling about $107 million of bonds; refunding debt to cut costs after such securities beat the municipal market the past two years.
Business Insider: – Speculation of a ‘Great Rotation’ is premature. – The S&P 500 Index closed above 1500 for the first time since 2007 on Friday, after rising for eight days in a row, leading to speculation that the long-awaited rotation from bonds into stocks may finally have arrived and is powering the rally. While we are also awaiting the rotation of investment flows from bonds into stocks, we think the latest speculation is premature and that the stock market rally may be due for a pause or a modest pullback.
ETF Trends: – Muni bond ETFs: January rebound. – With the political ripples of the “cliff” and inauguration finally reaching the edge of the pond, the markets appear to be once again fully engaged in the dissection of domestic economic releases, earnings and European monetary drama.
Financial News: – Alarm bells ring over fixed-income rules. – More than half of Europe’s investment community, both on the buy-and sellside, is worried about new trading rules which could reduce liquidity in the fixed-income market and raise the cost of issuing debt.
Ploutos: – Equity/Fixed income momentum – February 2013. – The first in a series of articles which aim to give investors with differing risk tolerances tips on how to employ a number of fixed income and equity strategies to improve the performance of their balanced portfolios.
Oblivious Investor: – Short-term TIPS fund vs. intermediate-term TIPS fund. – How do intermediate TIPS funds compare to short-term TIPS funds? For example is the inflation protection for both funds roughly the same? What about interest rate risk?
WSJ: – Investors who have loaded up on high yield bonds could be in for a nasty surprise. – With the US stock market teetering near its highest level in history and money flowing back into stocks for the first time in years, you are right to be getting worried and not only because stocks are looking frothier. Many investors don’t realize that they also have made implicit bets on U.S. stocks by purchasing other assets indirectly tied to them, such as high-yield and emerging-market bond funds.
Reuters: – Treasury yields hit their highest since April. – US Treasury yields hit their highest levels in over nine months on Monday and traders said borrowing costs had further room to rise as markets readjust to a more healthy economic outlook after recent data.
Wonkblog: – No, there probably isn’t a bond bubble. – One peculiar legacy of the financial crisis is that, among the financial commentariat, there is a tendency to see a bubble whenever the market for a particular asset rises. But no bubble fears are as widespread as those for the markets for government bonds. So are Treasury bonds a bubble about to pop?
BusinessWeek: – The rising bubble in bond-bubble chatter. – Don’t be surprised if someone soon creates an ETF to track the verbiage expended by traders, investors, and the financial press about a bond bubble. But bond mania, and the attendant hand-wringing over it, could go on for a while. There’s a lot—institutionally, generationally, situationally—driving that seemingly indefatigable bull.
ETF Trends: – High-yield, emerging market bond ETFs lead outflows on pullback. – ETFs tracking high-yield corporate bonds and emerging market debt saw the highest outflows last week amid a sell-off. Investors have been chasing these hot-performing sectors in an effort to boost yield in a low-rate environment for bonds, but the recent pullback has some analysts worried about the health of credit markets.
FT Adviser: – Invesco bond duo hits sell button on banks. – Invesco Perpetual bond fund giants Paul Causer and Paul Read have started selling some of their major bank bond holdings, after their funds soared to the top of the performance charts.
Gross (tweet 1 of 2): Don’t retreat – just be cautious. Central bank check writing creates bubbles/distortions in all markets. What to do??
— PIMCO (@PIMCO) February 4, 2013
Gross (tweet 2 of 2): Sell long term bonds. Buy low P/E stocks, TIPS and Italy bonds.
— PIMCO (@PIMCO) February 4, 2013
— David Schawel (@DavidSchawel) February 4, 2013