$LOG 5.0: That was a swift kick in….

Well, that didn’t take long did it!?

It seems like yesterday I wrote about the 10 Year U.S. Treasury Note hitting what seemed like a rock bottom yield of 1.27% but, low and behold, this morning it is sitting a a real-time quote of 0.713%, which is up from yesterdays 0.380%! Never seen nothing like this before, the swiftness of such big moves.

And regarding the stock markets because remember, there are many, not just one monolithic “stock market”- well, that also was a swift kick in the pants! Intra-day circuit breakers kicked in for the first time since 1997! These circuit breakers were put in place due to the crash of 1987, which I experienced and still remember.

I won’t bore you with stuff you can read about anywhere and everywhere else, but I will try to highlight items that hopefully add-value, items to try and help you make sense of things, even when they seem to be, or actually are, nonsensical.

So here’s something to put things in perspective, as it relates to the 10 Year U.S. Treasury Note, which we will call the benchmark “risk-free rate of return”. Strategas (see link below and full disclosure I have no idea who they are, just saw this via the WSJ Daily Shot) provided the below chart noting the “% of S&P 500 Stocks with Dividend Yields Greater than the 10-Year U.S. Treasury Yield”.

https://twitter.com/StrategasRP/status/1237078865677254657/photo/1

https://twitter.com/StrategasRP/status/1237078865677254657

What do you see? It’s sort of like fine art, beauty is in the eye of the beholder, right? I’ll just leave it at that, because there’s a lot in that chart to digest, beyond the obvious. But I do want to emphasize their note, “From last week (emphasis mine)… this will be higher today”.

Next, the VIX…

Thanks for reading and have a good day!

Steve

$LOG 4.0: U.S. 10 Year Treasury Note Yield= 1.273%!**

So much to write about, sometimes I need to just pick something.

So this morning, since there is plenty of  “unrest” in the markets, I want to highlight that the U.S. 10 Year Treasury Note Yield is sitting at a record low 1.273%!**

 

That’s right. Lock your money up for 10 YEARS and receive a whopping interest payment of 1.273% per year, without any adjustment for the effects of inflation. Ok, yes, I agree, what you’re buying (not investing in) is a U.S Government Bond that is fully guaranteed– actually the proper verbage is it’s guaranteed “by the full faith and credit of the U.S. government” and “that interest and principal payments will be paid on time”– BUT and this is a BIG BUT–

You’re only guaranteed to receive your principal back if you hold these bonds until maturity! This needs some explainin’:

For instance, if you bought a 1o Year Treasury Note at issuance today, with a denomination as low as $1,000, with a stated rate of 1.273%, you will receive this interest payment semi-annually (pro-rata of course) and then receive your $1,000 principal back at the end of 10 years, only then, and exactly then, and only $1,000, nothing more nothing less. Period.

However, what if 5 years from, the prevailing 10 Year Treasury Note is being offered at 2.50%, or even 3.00%. That’s no good for you, since your Note is only paying 1.273%. So you could sell your Note (in the open market) and buy the 2.50% Note, but you’d sell yours at a LOSS, because “bond prices and interest rates move inversely”. That is, as rates rise, bonds prices go down, generally speaking, all things are equal.

That’s called interest rate risk! Then there’s the opportunity cost of the investment. Do you think another investment (maybe the market in general) 10 years from now will be worth more or offer better risk/reward? Maybe, maybe not…

Anyway, there’s a lot more to this and I’m not implying or recommending to not buy bonds or not allocate a portion of your portfolio to bonds/fixed income, because you most always should.

I simply want to point out that the 10 Year Treasury Note yield issitting at a record low, due to the Coronavirus crisis– Sell Stocks > Buy Bonds!! And not just any Bonds, primarily zero credit risk U.S. Government Bonds! As more folks rush to buy bonds, prices go up and rates go down (remember the inverse relationship?) and as more folks rush to sell stocks, prices go down (that one is simply supply/demand).

Anyway, carry on and don’t panic, or try not to if you are on the verge or already are.

**I haven’t even finished this post and it’s sitting at 1.257% (10:38 AM EST). Thank you Wall Street Journal!

$LOG 3.0: Bull Riding!

There isn’t a perfect analogy or metaphor, as far as I know, to describe investing or how markets behave, but there are some good ones. I personally like the Rip Van Winkle analogy, and the age old question of “When is the best time to plant a tree?”. But more on those another day…

Today, we’re talkin’ Bull Riding! Obviously, I’ve never done it and never will, but hey, I’ve seen it on TV.

Bull markets, or markets that rise, generally, over a prolonged period of time, can make some pretty powerful moves down as well, although they’re short-lived, until… well, they’re not. Sort of like a big powerful agitated bull bucking around trying to get rid of that rider (you, the investor) from it’s back.

You can think of the Bull as being the market movements in a literal sense, sharp powerful moves both up and down, but you can also think of the Bull as your emotions, or news events, political events, crisis, etc… These can be powerfully unsettling. They can confuse and bewilder, and throw you off the bull way too early. I’ll highlight two recent events that fall into these categories.

Firt, politics aside, when we. the USA, on January 3, 2020, orchestrated a drone airstrike toward a high ranking Iranian general, I thought to myself, “Hey, them is some fightin’ words!” Meaning, that’s a full powder keg there and if anything is going to unsettle the markets and global stabilty, then this just might be it! The event and possible consequenses were, at least in my mind, like a big bull bucking around trying to throw us and the whole bull market into the abyss, right?!

Nope! Just a short blip on the markets screen. That surpised me.

The second one is playing out right now, literally right now. I’m speaking of the Chinese virus situation. I’m no doctor but, to me, it seems like some scary stuff, and the news keeps getting worse. This event could also be seen as pretty unsettling because, after all, China is such a big player in the global markets and driver of economic growth worldwide. You start shutting down China to contain a virus and I’m thinking that’s going to be pretty unsettling to global economic growth and the stock market, right?

Not so far. As I write this, the .DJIA is +480! No news to drive it higher, actually more bad news that the virus is spreading and documented cases are rising. Go figure…

Sure, both of these things could come back to bite the markets, but they haven’t so far. What they did do was agitate and stir them up, to try and buck everything and everyone off it’s bull market back, but it hasn’t worked, so far. So hold on tight and don’t get thrown off too early for the wrong reasons.

Happy belated new year!

$LOG 2.0: Climbing the Wall of Worry!

This is an old adage that still resonates no matter the economic, political or market environments. So what does it mean and why has it stood the test of time?

Well, in terms of markets, for every buyer there must be a seller (generally speaking and, yes, I know short sellers are another type of player), right? If there are more sellers than buyers then prices fall. On the flip side, if there are more buyers than sellers of a stock, or stocks in general, then prices will rise, right?

In extreme market environments, such as the late 90’s Tech Bubble, folks bid up the stock prices of various ‘internet’ companies, and tech stocks in general, to outlandish levels. This occurred because there were multiples of buyers vs. sellers. You might be thinking, “Yes, I know this much Captain Obvious!”.

Likewise, during the ’07 – ’09 mortgage meltdown market, folks practically gave up on stocks all together! Not only were they dumping all their stocks, they were selling them at historically low prices, in hindsight at least. More on Fear and Greed later.

These are examples of extreme market environments, both bullish and bearish. However, what about markets that aren’t so extreme, negative or positive? Maybe an environment where the markets have been good for “so long” (over 10 years, right?) that folks are worried and saying “This can’t keep going higher any longer. It’s going to fall or crash soon” (Worry #1)

Or, maybe the political environment is so toxic that it’s going to wreck our economy and markets. (Worry #2)

Or, maybe the economic environment seems so bleak (trade war with China?) that the economy will suffer and the markets, in turn, will fall or crash. (Worry #3)

And on and on….

So, now back to our “buyers and sellers” premise from above. Right now, in my opinion as well as others, investors are generally pessimistic about the economy, the stock market, the political environment, etc… A lot of folks seem worried about everything when it comes to investing. People want to “hold cash” for the pending market correction or crash. They’re waiting to buy. They have their cash ready (read this WSJ article) to pounce on the opportunity of low stock prices!

But what if the markets creep higher while lots of folks keep waiting!? FOMO creeps in and eventually these worried investors reluctantly buy back into the market because it keeps going higher. Their correction or crash hasn’t occurred and they FOMO.

It’s when things aren’t so obviously bad or obviously good but investors still worry and they wait… and wait…. and wait…. until one day they can’t wait anymore. They buy back into a market that keeps creeping higher, with their bargain hunting cash. One by one they give up, fold their hands, reluctantly and begrudgingly, they buy back into the this “terrible” market!

So there it is. Climbing the Wall of Worry! It’s one of the factors in play right now, at least in my humble opinion.

Important disclaimer: I’m not advocating or implying that the market will keep going higher or saying anyone should invest based upon this theory or premise. Every minute of everyday, there are millions, actually billions, of investors making buy/sell decisions. These collective daily decisions ultimately determine whether markets keep going higher or start to turn lower. So make sure to base your investment strategy and decisions upon your personal goals and financial situation.

Until next time,

Steve

$LOG 1.0: Welcome!

Welcome to the $LOG!

Since I’ve been involved in business and finance for 30+ years, there’s quite a bit of history and experience stored in my analog brain. I’m going to dig deep and provide some (hopefully) interesting ideas, experiences, opinions, and lessons learned related to all things $ONEY!!

So stay tuned, check back often, and get ready for $LOG 2.0!

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