Bond Warnings Rise as ’94 Parallels Seen in Fed-CPI Split – Bloomberg 09-29-14

Salient to Investors:

  • The last time consumer-price increases were slowing before the Fed started raising rates was in 1994, when Treasuries lost 3.3% and Greenspan doubled the benchmark rate to 6% despite inflation being at a 7-yr low of 2.5%.
  • Gary Pollack at Deutsche Bank said the critical example for the markets is 1994, and that is what we all fear.
  • Futures indicate the Fed will start raising short-term rates in July 2015 to 0.76% by the end of that year.
  • Margaret Kerins at Bank of Montreal said the Fed does not care about bond guys losing some money so when it’s time to tighten they will do exactly that.
  • Julian Robertson at Tiger Management said the bubble in bonds will end in a very bad way.
  • Leon Cooperman at Omega Advisors says bonds are very overvalued, and Howard Marks at Oaktree Capital says interest rates are unnaturally low.
  • The iShares 20+ Year Treasury Bond ETF just had its largest weekly redemption since inception in 2002.
  • Cathy Roy at Calvert Investments says bond investors have little reason to worry the Fed will opt for a more aggressive stance on rates because inflation will stay low without faster wage growth to get Americans to boost spending – if anything, we will see talk of raising rates pushed into 2016.
  •  Hourly earnings have risen an average 2% over the past 5 years, the weakest in any expansion since at least the 1960s.
  • Robert Tipp at Prudential Financial said faster growth in 2015 will prod the Fed into moving sooner to stay ahead of the curve – by mid-2015 we may have passed the tipping point.
  • Economists project 3% growth in the US in 2015.

Read the full article at http://www.bloomberg.com/news/2014-09-29/bond-warnings-emerge-as-94-parallels-seen-in-fed-cpi-split-1-.html

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Citigroup Warns History No Guide in Policy Shift: Credit Markets – Bloomberg 09-23-14

Salient to Investors:

Stephen Antczak et al at Citigroup said:

  • Each of the 5 times since 1980 that the Fed started raising its benchmark rate, the extra yield on corporate bonds over government debt narrowed in the following 6 months as accelerating growth boosted optimism.
  • Spreads will tighten this time also, but after 6 years of short-term rates near zero and nontraditional forces at play, a flight by yield-seeking “tourists” could outweigh any benefits, and prevent or diminish the normal pattern of spread tightening.
  • Going back to 1988, in the 11 periods when the 10-yr T-yield rose more than 1% over a short period of time, the median spread on investment-grade bonds has typically tightened 0.31%, and on junk-rated debt by 1.08%.

Julian Robertson at Tiger Mgmt said the bubble in bonds will end in a very bad way.

Rick Rieder at BlackRock said the Fed’s statement last week offered signs that the pace of policy rate hikes is going to be quicker than markets have expected.

Much of the money contributing to the market’s growth may not stay around when rates rise. TrimTabs Investment Research said that when the Fed first signalled it would start ending QE in 2013, US bond funds posted a record $61.7 billion of redemptions through one period last June.

In the 3 tightening cycles in the past 25 years that ended in 1995, 2000 and 2006, high-yield junk bonds provided positive returns.

Patrick Maldari at Aberdeen Asset Mgmt said any violent move in benchmark rates would force the market to be more sensitive to Fed policy since interest-rate increases are associated with economic strength, but he expects a gradual, engineered move in benchmark rates and is more focused on credit risk than interest-rate risk.

The yield spread on junk bonds over treasuries is at 1.74% versus a high of 8.96% during the credit crisis.

Collin Martin at Charles Schwab said this time could be different and we won’t necessarily see spread tightening.

 

Read the full article at http://www.bloomberg.com/news/2014-09-23/citigroup-warns-history-no-guide-in-policy-shift-credit-markets.html

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Tiger’s Robertson Says Bond Bubble to End in ‘Very Bad Way’ – Bloomberg 09-22-14

Salient to Investors:

  • Julian Robertson at Tiger Mgmt said bonds are at ridiculous bubble levels as governments worldwide buy bonds to keep their countries growing. Robertson said the bond bubble will end very badly but is finding equity opportunities in great companies, like Alibaba.
  • Leon Cooperman at Omega Advisors said called bonds are very overvalued but sees opportunities in the stock market where there is no indication of euphoria priced in.
  • Howard Marks at Oaktree Capital said investors are taking on more risk as central banks keep interest rates unnaturally low and suppress yields on traditional fixed-income investments.
  • Bill Conway at Carlyle Group does not see a catalyst that would collapse the bond market but says almost every company in their buyout funds has refinanced at least once.

Read the full article at  http://www.bloomberg.com/news/2014-09-22/tiger-s-robertson-says-bond-bubble-will-end-in-very-bad-way-.html

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U.S. Stocks Fall as Small Shares Tumble Amid Home Sales – Bloomberg 09-22-14

Salient to Investors:

  • JC O’Hara at FBN Securities said the spread between the Russell and S&P 500 is widening again and worrying traders who want to see small caps participate.”
  • Jonathan Krinsky at MKM Partners sees a good chance of US equities declining modestly into early October, citing deteriorating breadth and seasonal weakness. MKM said that when the Russell 3000 Index touched a intraday record on September 19, less than 55% of its stocks were above their 200-day moving average, and the last time that happened was on March 24, 2000 at the end of the dom-com bubble.
  • Donald Selkin at National Securities said people are looking for an excuse to knock the market back down a little bit.
  • William Dudley at FRB New York said the Fed is on the lookout for signs of asset-price bubbles, and financial stability is a necessary condition for effective monetary policy.
  • Julian Robertson at Tiger Mgmt said bonds are at ridiculous levels and their bubble will end very badly – governments worldwide are buying bonds to keep their countries growing.

Read the full article at  http://www.bloomberg.com/news/2014-09-22/u-s-stock-index-futures-fall-as-china-damps-policy-bets.html

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Tiger’s Chopra Stumbles in Rise to Top Robertson Empire – Bloomberg 09-16-14

Salient to Investors:

Julian Robertson at Tiger Mgmt said:

  • You cannot expect spouses who love each other and are in the stock business not to talk stocks.
  • People that compete well in one thing compete well in other things.
  • In the hedge-fund industry, a few stock picks can make or break performance.
  • All you have to do in hedge funds is perform and money will pour in.

Only a handful of spouses have each run separate hedge funds.

Chris Schelling at Kentucky Retirement Systems said a hedge fund’s senior business employees leaving consistently is a red flag, especially with institutional capital.

Kyria Capital Mgmt said there are 125 female-run hedge funds, representing 3.6% of the total hedge-fund industry.

Read the full article at  http://www.bloomberg.com/news/2014-09-16/tiger-s-chopra-stumbles-in-rise-to-top-robertson-empire.html

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Billionaires Are Buying Gold, Should You? – Investopedia 12-19-12

Salient to Investors:

Billionaire hedge fund managers have been heavily buying gold. John Paulson has been accumulating gold and gold mining stocks at a fevered pace. George Soros, Louis Moore Bacon, Julian Robertson et al have been buying gold, mining equities and ETPs. Bill Gross at Pimco has urged investors to buy precious metals.

George Soros says the global economy is in worse shape than during the Great Depression and riots on the streets of American cities are inevitable.

The explosion of stimulus across the world, currency debasement and slowing developing market growth should push gold higher.

Warren Buffett says buying gold is nonsense and that the sell-off in stocks due to the fiscal cliff is a buying opportunity.

Read the full article at http://www.investopedia.com/stock-analysis/2012/billionaires-are-buying-gold-should-you-gld-au-phys-vig-gtu1219.aspx#axzz2FlPdhSHz.

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Tiger’s Roberston Says ‘Disaster’ Funds Wrong: Tom Keene – Bloomberg 10-26-12

Salient to Investors:

Julian Robertson at Tiger Management said hedge funds positioned for a “disaster” are making a mistake – so bearish that they’re not going to get out of it without a black-swan type event.

The Bloomberg Global Aggregate Hedge Fund Index is up 3.1 percent in 2012 through September versus up 16 percent for the S&P 500 and up 4.5 percent for the Barclays Capital Bond Composite US Index.

Bank of America Merrill Lynch report stock hedge funds are 22 percent net long versus an average of 35 percent to 40 percent.

Read the full article at http://www.bloomberg.com/news/2012-10-26/tiger-s-robertson-says-hedge-funds-seeing-disaster-are-wrong.html