I have a strange feeling today–one I have every month or two. Normally these ‘strange’ feelings pass within a day or two so I absolutely refrain from panicking. As I watch crazy things happen in the equity markets–for instance the Gamestop (GME) action–trading in a range of $61 to almost $160 and then back down to $80 it reminds me of the ‘fake markets’ that we are in now–so much money sloshing around. Then I watch all of the SPACs being issued on a daily basis–just craziness actually. Too much money available to everyone (or at least to the ‘haves’). When does the music stop and who doesn’t get a chair?
Most markets with the exception of the bond market are pretty quiet–but the 10 year treasury is off 6 basis points. Only a couple of weeks ago we saw spikes as inflation ‘talk’ heated up–I thought almost for sure rates would keep moving slowly higher. Maybe it was just my wishful thinking–maybe helicopter money (or the promise of it) are no longer able to move markets. Maybe instead of a continuing recovery from Covid-19 we are on the verge of further economic darkness.
I am just ‘sticking to my knitting’ and keeping one eye on the macro economy–I feel a black swan–but I do every week–guess I better up my prozac dose.
40 thoughts on “Interest Rates Moving Down”
Nice short squeeze today BGS, sold half of my holdings at $40. I’m ok with these teenager’s games as long as it bring me profit )))
Gamestop was a massive short squeeze caused by lots of hype by the kiddies at Redditt wallstreetbets and Robinhood.
They also had a couple others put in play.
Gambling not investing
On 1/17 I bought bgs @27. and change. Checking my list around 11 today I noted it at 39 and change. Up 9+???????Could not find any news so I bailed at 39 and change. went to 42. Closed today @34.03, up 3.98.
Not hi tech stock. Prozak moment???
bill o – good move.
Thanks Tim. Instinct as opposed to knowledge. Sad it has come to this. I am nervous about future purchases. I had researched bgs for long term hold, conservative box.
Look at their short float https://finance.yahoo.com/quote/BGS/key-statistics?p=BGS
Sir: Please, what are the “float” stats telling me? I ask as I do not understand the import of the numbers. thanks
In the last days there is a wave of YOLO speculators who go-in in the most shorted stocks in the market. They coordinate their actions on reddit and buy stocks in hopes of achieving a short squeeze when shorts are forced to close them due margin calls. Today there were massive squeezes not only at GME but also at FIZZ, BBBY, MAC, SKT, BGS etc.
Why did a processed food company like BGS have a 35% short interest? Their balance sheet is fine.
Reddit and the Robinhooders “attacked” any stock (by buying) that was being heavily shorted.
I don’t find what these retail traders did any different than what Goldman Sachs and other investment banks do when they put price targets on high-flying stocks at 200X sales (DOOR, etc.) that are 5 years away.
Hah, Rob! I happened to hear Cramer say some stock was cheap because compared to XYZ that was trading at something like that 200x SALES 7 YEARS OUT, it was a bargain….. That’s where we are these days in stocks?????? R U kidding me, Cramer??? No wonder a stock can now beat the street estimates on EPS and still tank 10% because they miss on revs… Strange world… Couple that with IPOs and/or SPACs on nothing companies and how can you not think 2000 Redux is in the air?
If you want to end up bagging groceries at Trader Joe’s when you are 75 you need to do two things: Follow Cramer on CNBC and follow HDO at Shrinking Alpha. Look at what they were recommending 2-5-10 years ago and see the train wreck that resulted.
Gambling? i don’t know. about that; they figured out that gamestop had ~80M in cash but had been shorted so hard that the value of the shares was below the value of the company. they also recognized that the share float was small so they coordinated a group buy and also prevented their brokers from loaning their shares out. I thought it was pretty darn clever!
Yep Gambling –
First – best I can tell GME never traded below their cash value
Second – right now they pushed GME to a $5.4 Billion market cap
Third – all one has to do is look at the reddit WallStreetbets board to see that many of them are gambling
Shoot – my daughter told me a couple of her friends put money in on this. She said they did it just for fun and to roll the dice
Now I have no doubt there are some sophisticated people involved who somehow organized this group to create this massive short squeeze – and they will be smart enough to get out at the right time with large profits – good for them. But others will get left holding the bag when it comes crashing back to earth
i agree there are some very clever people involved here and they won’t be left holding the bag.
Tim – Have you ever heard of the Holmes Brothers? From “Edge of the Ledge” They probably had to up their dosage too having seen the black swan…… https://www.youtube.com/watch?v=naE960dOmyA&ab_channel=StanBrewer
“I had some stocks, I had some bonds
Seemed all I had to do was wave a magic wand
I was saving up for a rainy day
Now it’s all gone from my 401K”
Thanks for mentioning the Holmes Brothers. B4 my wife’s health began deteriorating, we used to take a Blues Cruise in the Caribbean in January.
I love Blues Music, I love warmer weather in January, and I love to travel to
Central and South America, Puerto Rico and all points in between.
Heard and met lots of great artists including the Holmes Brothers. Not only was their blues stuff awesome but they could kill Gospel music. A Sunday morning service with them and other artists doing Gospel – oh man.
Thanks again for mentioning them and linking one of their you tube videos.
razorback – We were on the original Ultimate Rhythm & Blues Cruise and a few more after that. That eventually turned into what is now the Legendary Rhythm and Blues Cruises. Long sad story why the change in name and why we didn’t go back, but there’s nothing like those cruises. Wonderful 24 hour 7 day party that the artists love as much as the passengers… Holmes Bros were not in our years, but did see them a few times in NYC – most notably in a church in a concert called like Juke, Joy and Jubilee which featured them (they were the juke), Fontella Bass (“Rescue Me”), the joy after her return to Gospel, and a wonderful acapella gospel group called The Birmingham Sunlights, the jubilee… really memorable…. What a vocal tradeoff between Sherman and Popsie… Also saw them one night when they added a white Hawaiian steel guitar player who was absolutely nuts! Yeah, I know, nothing III related here – sorry ’bout that.
Good one 2wr–I kind of liked the beat! Never heard of them before now.
I’m also getting nervous feeling. I hate the word “bubble” but GME, SPAC, Bitcoin…
Amen Tim, I’ll add MMT, Stimulus checks and student loan forgiveness out of thin air, next stop negative interest rate on this Monopoly money. We all should be feeling Queasy.
mike–I would add all that but trying to avoid political talk.
TIM , Maybe you should give us your guides lines for “writing in code”. Guess I’ve never been that careful with my thoughts about what I hear and read nonstop on TV and the internet. My comments here at III have been as restrained as I ever get. “I’ll try to do better for you, but it won’t be easy”. Sorry Mike
mike–haven’t seen anything that is wrong with anything you have written. The only rule we follow is to not discuss politics–difficult in the current environment. Occassionally minor comments on politics are made–no harm generally. Just don’t want things to breakdown with divisive political fights that cause only harm.
Not that I said bubble–but I sure am thinking it.
I’m trying to understand how a short term bond fund like PGHY moves in relation to rates. It fell a ton last year and recently has been moving up, so is it’s price tracking rates? I thought bond prices move inverse to rates?
The shorter the term the less it reacts to changing rates. Those funds fell during the March crash because of increased bankruptcy risk, or just falling with the tide.
RE: PGHY ….
Rates are only one force in play. This is NOT a Treasury fund. There is a lot of credit risk and the price will therefore react to changes in credit spreads and perceived credit risk.
It’s also mostly non-US. I’m guessing it’s not hedged or not fully hedged on exchange rates. Check out the US dollar index to see how much the US$ has fallen recently.
If you are looking for a short term, US-dollar denominated, Treasury or IG fund that will give you more yield than MMs or CDs, with little if any risk of capital loss, this is not the fund you want.
With Europe and Japan, the other two big bond markets that matter (in terms of debt issued) have their rates so much lower than the US and a lot of it even -ve actual rates why did you think the rates in US would ‘keep going up’?
Sure the ^TNX went from sub 0.8x to 1.18 a big gain in % terms but now it looks like we are heading back to the 0.40-0.90 on the ^TNX box…
Thanks to Tim for the website and thanks to everyone from whom I learned something. NEWTZ is my first baby bond and I’m flipping it. The lower interest rates today probably helped.
gridbird in the making!
Bob, that is all I know how to do. A few months ago I felt rates had bottomed out, but no real major upswing drift on horizon. So I lumped my preferreds into 3 categories and just make trades inside those three sectors on minor movements and rotate amongst like sector brethren. Only the smallest of subset segments are left with any potential distinct upward continual price movement. And I am not willing to go there to try.
Birds of a feather! It just feels like holding the 5.5% NEWTZ at a consequential premium is like picking up nickels in front of a steamroller.
I can get large allocations of most Baby Bond and Preferred issues. The drawback is that I have to indicate my interest before the actual pricing takes place. So how do I know what I want and what I should avoid?
baby Gridibrd maybe
Yield starved folks are moving quick on these issues. Wish I had time to pay attention–I should have been on this one.
msquare–inflation–it has to be there somewhere–but then again have said that for 10 years or more.
Let’s suppose that we are still alive when inflation rears its ugly head. The challenge is that the Federal Reserve thinks they can control it, just like it is some mechanical process. Just turn this knob a little that way and this other knob a little this way, then voila! we can set inflation anywhere we want.
Not very likely, given their total misunderstanding of how inflation starts and gets out of control. Newer investors probably were not around in the inflation of the 1970’s which seriously got out of control under the Fed’s watch. Paul Volcker finally came in and raised short term interest rates to 20% which in conjunction with a deep recession killed off inflation. Not saying it will happen the same way this time around, but lets say inflation does get out of control. How high would short term rates and long term rates have to rise to tame it this time? And the implications for every preferred, baby bond and stock would be profound. Go see how they asset classes performed from 1966 through 1982. Dow hit 1,000 in 1966 and finally crossed through it again in 1982. After inflation it was worth ~ 333 in real terms in 1982. . .
And we are sure “it can’t happen here. . . “
Or maybe inflation is not going to be a problem. If the asset bubble pops, it will have a devastating wealth effect and deflation becomes the problem. So it’s either higher inflation and higher interest rates or an economic downturn. Neither would be good for asset prices at these levels. I continue to raise cash and play it safe even though there is probably plenty of time to take defensive action. Their are too many bond bears, including myself, for us to be right at this time.
AF said: “If the asset bubble pops, it will have a devastating wealth effect and deflation becomes the problem.”
AF, let’s assume your are correct and the asset bubble pops first. The solution to that would be . . . . drum roll. . . injecting ever more money into the system to boost asset prices. About 100% like what we did in 2020. And the end result would be even larger bubbles. And since nothing “bad” has happened yet, it “proves” that we can continue to do the same. It is MMT, even if we do not call it that.
Eventually, some how, some way, we will create increased inflation. And we won’t know how or why we did it until it is too late to put the genie back into the bottle.
You might be a bond bear, but the “bond vigilantes” only reside in the Smithsonian. The species died out and there are no surviving members. If bond vigilantes still existed, they would have forced long term rate up to pressure more fiscal discipline.
It might be our kids or grandkids that get to deal with this situation. We might not be around long enough to see it first hand.
If I might not be around long enough to witness something first hand, then there really are no current investment implications as far as I’m concerned.
On the other hand, my best indicator just bought big today after liquidating entirely in early April and resisting the entire move up. I adjusted accordingly.
That reminds me of a story. I knew the owner of an investment research firm. My acquaintance told me that he had one employee that was so bad at market timing that he paid him significantly more than what he paid any other employee. My friend told me that good investment research might be helpful about 70% of the time, but a guy who you know is invariably wrong is invaluable.
I remember well those Volker times. I had no money but I begged my father to lock everything into 14% 30-yr T-bonds. No. He bought SW Bell 16% bonds a w/5yr call and put the rest in 20% bank mmkts. Had been holding a few low (at that time) 8% IG ute bonds for years. “I’ll never loan money again for 8%.” lol
But, like Melania, I really don’t care, do you? I have no debt and my wants and needs are relatively simple and covered. So I’m already in my bunker. It’s a nice feeling.
Something everyone should think about.