July 31, 2020
By Steve Blumenthal
News flash: The 10-year Treasury yield falls to 0.52% after record GDP contraction. The yield on the 30-year Treasury bond was lower at 1.18%. The bond market has it right.
Every weekday, an Axios Markets email hits my inbox. This morning’s post caught my eye: Five years of U.S. economic growth vanished in the span of three months. From Axios:
- The decline between April and June brought the U.S. GDP back to levels last seen in 2015.
- While we fell into the hole swiftly, economists are dashing hopes of an equally swift recovery. They warn it could take years for the U.S. to recover.
Check out the following chart.
Source: Axios Markets
Meanwhile, record-breaking economic drops are being recorded across the globe.
- Massive economic contractions happened across the European Union, data out this morning shows: Spain’s economy fared the worst with an 18.5% drop from the prior quarter.
- Mexico’s Q2 GDP fell 17.3% from the prior quarter—the biggest quarterly contraction on record, according to data released yesterday.
One of our trade execution partners sent us a note late yesterday afternoon. We see a very large buy order for the junk bond ETFs. Wonder who that could be? I want my SPV.
Now look at them yo-yo’s, that’s the way you do it
You play the guitar on the MTV
That ain’t workin’, that’s the way you do it
Money for nothin,’ and your chicks for free
Now that ain’t workin’, that’s the way you do it
Lemme tell ya, them guys ain’t dumb
Maybe get a blister on your little finger
Maybe get a blister on your thumb
– “Money for Nothing,” Dire Straits
Money ain’t for nothing, get your stocks for free (and junk bonds too).
That was pre-pandemic, and the economy was already slowing. As indicated, we touched a yield of 1.18% yesterday.
So where do we go from here? Grab that coffee and find your favorite chair.
The link to Wednesday’s Trade Signals post is below as well. The signal dashboard is mostly green across the board. Bonds and gold trends remain bullish and investor sentiment is neutral. It’s been a great month for high yield. Fundamentally it makes zero sense, but there is money in those SPVs and the big guy is buying. The trend in HY is bullish. Ditto for equities, with the FANGMAN stocks providing the bulk of the lift.
If a friend forwarded this email to you and you’d like to be on the weekly list, you can sign up to receive my free On My Radar letter here.
Included in this week’s On My Radar:
- Trade Signals – Stocks, Bonds, and Gold Continue Rise as COVID-19 Maintains Grip on US
- Personal Note – How We Think About Wealth
A. Gary Shilling and David Rosenberg – Notes from the Research Call
I was kindly asked to not sure my notes publically. The have been removed.
SB Conclusion: My view remains unchanged: Deflation now, inflation later and I’ll keep you up to speed with the recession and inflation data I share with you each week in Trade Signals.
Here is a link to Dr. Lacy Hunt’s most recent quarterly letter. Worth the read if you have the time.
Trade Signals – Stocks, Bonds, and Gold Continue Rise as COVID-19 Maintains Grip on US
July 29, 2020
S&P 500 Index — 3,227 (open)
Notable this week:
No major changes to equity and fixed income indicators this week. Fixed income and equity signals remain bullish, notwithstanding a raft of macroeconomic, political, and public health issues. The current news cycle consists of today’s FOMC statement following its two-day policy meeting, debate, confusion, and negotiation of Congress’ next economic relief package, corporate earnings announcements, state and federal responses to COVID-19, protests (and law enforcement response) in major U.S. cities, and continuing spread of COVID-19 infections in the majority of U.S. states.
Notably, Ned Davis, founder of Ned Davis Research, published a note today regarding short-term sentiment on equities, the dollar, and gold. Ned notes that the NDR Daily Trading Sentiment (which we monitor and discuss below), has hit “mildly excessive optimism,” which is a bearish signal for stocks. Additionally, Ned states that foreigners have been record buying U.S. equities, while there’s been record corporate selling. Finally, according to Ned, gold is not yet overbought.
Consumer confidence dipped in July, due to concerns about coronavirus spread. The Conference Board’s Consumer Confidence Index fell 5.7 points in July to 92.6, below the consensus of 96.0. On a year-over-year basis, confidence is down 43.2 points, near its steepest decline since the Great Financial Crisis, and consistent with recessionary fears.
Not a recommendation for you to buy or sell any security. For information purposes only. Please talk with your advisor about needs, goals, time horizon and risk tolerances.
Click here for this week’s Trade Signals.
Personal Note – How We Think About Wealth
Just a quick thought on portfolio risk management: I’m not worried about the stock market and I don’t think you should be, either. I am uber-concerned about not losing my core wealth. It’s about having a game plan. At my firm, we call it “Core and Explore.” Simple, yes, but it works.
We believe it is vitally important to defend and carefully grow core wealth. This is where risk management comes into play. Protect the core. Doing so enables you to explore with the balance of your wealth. If you have great conviction in the return of your “explore” investments, hold them, and add to them as the businesses improve. For my largest personal holding (a private equity investment), I’m looking out ten years or more.
Meanwhile, if you are an unaccredited investor and unable to access private investments, there are still ways to “explore.” We’ve recently added ARK Invest Disruptive Technology Portfolio – a high-conviction top-ten stock ideas strategy to our TAMP platform. It will be volatile but I believe the rewards in ten years will outpace the S&P 500 Index. There are no guarantees, of course.
Partner John Mauldin and I share our thinking around Core Wealth and Explore Wealth in a paper titled, “How We Think About Wealth.” If you’d like a copy of the paper, click here.
Thanks for reading. Hope you found the Shilling-Rosenberg notes insightful. Wishing you a great week.
Warm regards,
Steve
Stephen B. Blumenthal
Executive Chairman & CIO
CMG Capital Management Group, Inc.
Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management.
Click here to receive his free weekly e-letter.
Follow Steve on Twitter @SBlumenthalCMG and LinkedIn.
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