Source: The Big Picture
Tag Archives: Fixed Income/interest Rates
S&P 500 vs US 10 Year Yield to 1791
S&P 500 composite vs US 10 yr yield to 1791 (Logarithmic Chart)
Click to enlarge
Source: Global Financial Data
Source: The Big Picture
Corporate AAA Yields vs 10 Year, 1857 – Present
Moody’s Corporate AAA bond yields vs US 10yr Constant Maturity Yield to 1857
Click to enlarge
Source: The Big Picture
The New Great Rotation: Commodities into Bonds
You probably heard the chatter over the past few quarters: “The Great Rotation” was about to unleash a new leg up in Equities. Bonds were going to be sold, equities purchased, and a new leg up was starting.
The story goes something like this: U.S. Treasury Bonds had enjoyed a 30 year bull market, and it was now coming to an end. Paul Volcker rebooted fixed income, taking rates to 20% to break inflation, and in the three decades since bonds have seen their prices inflate as rates normalized, then fell precariously low, then were driven to zero by QE. That cycle is over, we are told, as rates now have nowhere to go but up, and investors will soon become sensible and rotate into equities.
Except, of course, that it hasn’t.
Why? Perhaps we should consider an alternative explanation to the sector rotation story, which is rapidly being revealed as little more than wishful thinking.
The story that is not getting told nearly as much: The investment community noticed the success of Endowment funds (e.g., Yale’s David Swensen). The monkey-see-monkey-do community, ignoring valuations and prior gains, hired new consultants to shake it up. “Make us look like Yale” they pleaded to the mostly worthless community of consultants. No fools they, the overpaid consultants happily complied, and the next thing we know, these Whiffenpoof Wannabes are up to their eyeballs in private equity, hedge funds, structured products, real estate, and commodities/managed futures.
Gee, late-to-the-party investors in illiquid, pricey investments — who ever could have imagined that this was not going work out particularly well.
Time for a change: Fast forward a disastrous decade. As managers and consultants were replaced/fired, the new guys wanted to start unwinding the work of their priors. Since most of these alternative asset classes are illiquid, there is not a lot of wiggle room without severe haircuts (penalties for early withdrawal). What to do.
One of the few that is not are the Commodities/Managed futures bucket. My guess, based on prices and logic, is that these new managers are selling what they can — and that is commodities.
What do the charts (after jump) say?
Gold and Silver flat for 2 years. Energy for even longer. Agricultural products back to 2010 prices. Industrial metals near 2010 lows.
Commodities started the 2000s so promising — what with rampant inflation and the dollar losing 41% of its value, have since gone nowhere. So the new guys are sellers, and the money is going into less esoteric, liquid assets.
That means traditional assets: Munis, Treasuries and Corporates for the safe money, stocks for their risk assets.
The great rotation is already underway. Just not the way the stock bulls have been hoping for.
Source: The Big Picture
Bernanke Goes Car Shopping
Have you been shopping for an automobile recently?
If you want to understand the impact the Federal Reserve is having on the real economy, I suggest you do a little online homework and then go hit the auto dealers. You will be astonished at what you find.
Whether you are buying a car or leasing one, the financing component is a very large part of what is typically the largest purchase the average American family makes (homes being the largest).
Regular readers know I am fan of the automotive arts, from the $15k Fiat 500 to exotics that cost 50X as much. I always have a good sense of what’s available, what’s coming out, and their prices. One of my marketable few skills is the ability to figure out the ideal car for a person within 15 minutes of meeting them (its true).
Take this background, and add in my daily awareness of where interest rates are, and one would imagine that I would not be surprised at the cost of buying or leasing a new car today.
As it turns out, I was stunned at the bargains available across all price points.
We lease our cars through the office. By dumb luck, I have two cars coming up within 30 days of each other. I am the spendthrift, while Mrs. Big Picture is the one who reins in my attempt at single-handedly reviving the American economy.
To give you an idea of how things have changed — all due to interest rates — the same monthly payments for leases now buys you about 25%-33% more car for your buck. Financed purchasing power gives you almost as much gains for your buy relative to 3-4 years ago.
A car I suggested to the missus as her daily driver in 2009 was dismissed out of hand as “way too expensive.” It was about $18k more (almost $200 more on a monthly lease) than what we ended up with. The same car leased today cost $20 more per month. Several cars I didn’t even dare suggest last time (lest I get yelled out) we actually test drove and made offers on.
The cost of any given car is a function of its MSRP, the prorams the dealers are running, what is hot or not, and many other factors. But the key factor today is ZIRP — the near zero percent rates that the Fed is running.
If you have half decent credit and are even remotely thinking about replacing an automobile, I strongly urge you to go do some shopping. You will be very pleasantly surprised by what you find.
This is the entire purpose of QE/ZIRP. To stimulate the economy, move houses and cars and other financed goods. You might pay the cost for it in higher inflation (eventually), but mean time, listen to what your Uncle Ben has been suggesting to you — go make some financed purchases.
~~~
I’ll get some details up on the various car prices we have seen and what the negotiations were like later this week.
Source: The Big Picture
Bernanke Goes Car Shopping
Have you been shopping for an automobile recently?
If you want to understand the impact the Federal Reserve is having on the real economy, I suggest you do a little online homework and then go hit the auto dealers. You will be astonished at what you find.
Whether you are buying a car or leasing one, the financing component is a very large part of what is typically the largest purchase the average American family makes (homes being the largest).
Regular readers know I am fan of the automotive arts, from the $15k Fiat 500 to exotics that cost 50X as much. I always have a good sense of what’s available, what’s coming out, and their prices. One of my marketable few skills is the ability to figure out the ideal car for a person within 15 minutes of meeting them (its true).
Take this background, and add in my daily awareness of where interest rates are, and one would imagine that I would not be surprised at the cost of buying or leasing a new car today.
As it turns out, I was stunned at the bargains available across all price points.
We lease our cars through the office. By dumb luck, I have two cars coming up within 30 days of each other. I am the spendthrift, while Mrs. Big Picture is the one who reins in my attempt at single-handedly reviving the American economy.
To give you an idea of how things have changed — all due to interest rates — the same monthly payments for leases now buys you about 25%-33% more car for your buck. Financed purchasing power gives you almost as much gains for your buy relative to 3-4 years ago.
A car I suggested to the missus as her daily driver in 2009 was dismissed out of hand as “way too expensive.” It was about $18k more (almost $200 more on a monthly lease) than what we ended up with. The same car leased today cost $20 more per month. Several cars I didn’t even dare suggest last time (lest I get yelled out) we actually test drove and made offers on.
The cost of any given car is a function of its MSRP, the prorams the dealers are running, what is hot or not, and many other factors. But the key factor today is ZIRP — the near zero percent rates that the Fed is running.
If you have half decent credit and are even remotely thinking about replacing an automobile, I strongly urge you to go do some shopping. You will be very pleasantly surprised by what you find.
This is the entire purpose of QE/ZIRP. To stimulate the economy, move houses and cars and other financed goods. You might pay the cost for it in higher inflation (eventually), but mean time, listen to what your Uncle Ben has been suggesting to you — go make some financed purchases.
~~~
I’ll get some details up on the various car prices we have seen and what the negotiations were like later this week.
Source: The Big Picture
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