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Post by Fearchar on Apr 18, 2023 2:04:16 GMT
2023.04.17 New regime new portfolio approach.pdf (298.03 KB) Growing a little tired of Black Rock's commentary as some of their sentences seems to be recycled from within the last month. However, I can imagine that it's difficult to write new thoughts when market conditions are changing so slowly. So, maybe I'm expecting too much from BlackRock. Anyhow, they remain bearish. The reason they are touting a new approach is because going forward, they don't expect the traditional 60% stocks 40% bonds to be a good approach. Since both stocks and bonds have already rallied this year, they do not expect bonds to offset equity slides. Instead, they are expecting higher volatility with sticky inflation. They also state: "The longer rates stay higher, the greater the appeal of income in short-term bonds." They note that the core US CPI for March showed a resurgence in goods prices and persistent pressure form services. In their view, no rate cuts this year. Meanwhile, my favorite blogger, Scott Grannis stated on April 5th, that the FED needs to cut rates soon. He pointed out that the dramatic fall in long term treasury rates was a market signal for the FED to cut rates. They are however, not listening to the Bond Market. More recently, he commented on April 12th, that the FED needs to take a lesson from Hockey great Wayne Gretsky. That is the FED needs to focus on where inflation is headed and not so much on where it has been. Scott sees numerous indications that inflation is heading lower. Meanwhile, the CME futures market is at 84% probability for hike on May 3rd, with a "cut" back to current levels not until Sept 20th. A true cut to below current levels isn't expected until the Dec 13th meeting. Following this is a series of rapid cuts every meeting thru September 2024. A series of successive cuts isn't a good sign as it looks like desperation; hallmark of not anticipating the future.
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Post by Fearchar on May 16, 2023 0:34:09 GMT
2023.05.15 US Debt Standoff Volatility.pdf (323.14 KB) Today's weekly commentary from BlackRock focused on they US debt stand-off. They drew comparisons to the situation in 2011. Both were debt stand-offs. However, policy rates were near zero in 2011 and deflation risks were emerging while the FED balance sheet was expanding; thus providing a cushion. Currently, is much different with elevated rates and contracting balance sheet. Not surprising, Bond market volatility is much greater now. However, volatility in the S&P is currently subdued in comparison. Between July and August 2011 though, the S&P fell about 17%! Consequently, BlackRock is cautious and points out that just a few major tech stocks have account for almost all S&P returns this year. Conclusion: Brace for higher volatility (and be ready to pounce). Not clear when the day of reckoning will be. Janet Yellen has said could happen as soon as early June. Even if Treasury prioritizes bondholder over others, Credit Rating agencies could downgrade the US as happened in 2011. +2 on Short US Treasuries and Global inflation linked bonds.
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Post by Fearchar on Jun 6, 2023 0:40:07 GMT
2023.06.05 Macro outlook debt deal.pdf (316.1 KB) Blackrock market commentary in my own words: Refer to above .pdf file for specifics of Blackrock market commentary. The debt deal removed near-term uncertainty, but spending cuts (0.3%) were meager and will do little. They see rate staying higher for longer driven by tight labor market. Workforce participation has not and probably will not improve. Markets are slowly realizing that rates will not be cut rapidly. Long term treasuries rates may eventually rise as investors demand more. Could be $1T in bill issuances. They are extending their preferred bond duration out to 2 year notes. Still underweight DM equity and expecting a recession. Long term bonds not good as negative correlation between equity and bonds is expected. In other words, both equity and long term bonds could decline in tandem. NOTE: They are underweight on equity near term, but overweight on longer terms.
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Post by steadyeddy on Jun 6, 2023 0:57:33 GMT
View AttachmentBlackrock market commentary in my own words: Refer to above .pdf file for specifics of Blackrock market commentary. The debt deal removed near-term uncertainty, but spending cuts (0.3%) were meager and will do little. They see rate staying higher for longer driven by tight labor market. Workforce participation has not and probably will not improve. Markets are slowly realizing that rates will not be cut rapidly. Long term treasuries rates may eventually rise as investors demand more. Could be $1T in bill issuances. They are extending their preferred bond duration out to 2 year notes. Still underweight DM equity and expecting a recession. Long term bonds not good as negative correlation between equity and bonds is expected. In other words, both equity and long term bonds could decline in tandem. NOTE: They are underweight on equity near term, but overweight on longer terms. I do not think it is as dire as the commentary implies. Stocks will do more than fine in the next year, so will bonds. Buy both hand-over-fist.
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Post by daddymisc on Jun 6, 2023 3:00:45 GMT
Buy both hand-over-fist - chatter earlier> some portion of Social security fund will be invested in stock market.
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Post by FD1000 on Jun 6, 2023 4:17:31 GMT
For 2-33 months I keep hearing most analysts say: energy+HC+value are the best, tech is too expensive but so far, the market says the opposite. YTD QQQ=+9.17%...XLV=-(7.76)...the difference is "only" 16.9%. BTW, XLE=-(7.45%)...VTV(Value)=-(4.7%).So, what happened since March 13 and the OP(on 02/2023)? Blackrock continues to recommend EM + BIL. SPY+QQQ continue to outpace EM + Value VMFXX continues to be a better choice than BIL because MM has no volatility and performed better. Attachments:
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Post by Fearchar on Jun 6, 2023 12:42:03 GMT
I will admit that BlackRock commentary of being under weight near term and over weight long term does not really make sense for individual investors.
It would make more sense if they were just neutral or standard allocation to equity. Maybe somewhere it could be found how much is standard. I am thinking that must be near 60% equity.
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Post by johnberesfordtipton on Jun 7, 2023 19:11:00 GMT
Given Fink and his positions on some issues, a bit dubious
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Post by Fearchar on Sept 5, 2023 23:21:29 GMT
2023.09.05.pdf (363.5 KB) Favoring short-term bonds long termThat's Blackrock's title for this weeks commentary. They currently see three reasons why long-term bond yields and term premiums can climb higher: - Markets will price in inflation settling above DM central banks 2% policy longer term
- Investors will demand more term premium to reflect greater risk in nominal bonds due to higher inflation volatility and rising debt levels
- Foreign demand for long-term Treasuries may wane
To turn positive on long-term bonds, they need to see term premium rise. Blackrock:We trim our overall underweight to developed market (DM) nominal government bonds to lean into short-term paper and reduce investment grade (IG) credit to underweight from neutral. We think high quality credit offers limited compensation for any potential hit to returns from wider spreads and sensitivity to interest rate swings. We prefer higher yields in private credit and see alternative lenders filling a corporate financing gap as banks curb lending. Mega forces – structural shifts that can drive returns now and in the future – reinforce why we’re in a new regime of greater macro and market volatility, in our view. Aging DM populations could add to inflation as workforces shrink, keeping labor markets tight and wage growth high. And the rate of growth the economy will be able to sustain without stoking inflation will likely be lower than in the past. Aging also tends to come with elevated levels of government debt. We see the low carbon transition, another mega force we track, driving up energy costs over the next decade. A related capital spending surge and additional government spending will likely boost economic activity and bolster inflationary pressures. These and other mega forces underpin why we see central banks having a tightening bias to try to keep inflation near their policy targets. We went very underweight nominal government bonds in 2020 – but have trimmed that underweight at times when markets moved in line with our view. We trim it again but are not ready to turn positive on long-term bonds, even with the yield rise. That’s because term premium, or the compensation investors demand for the risk of holding long-term bonds, has risen from its lows but remains negative – especially for U.S. Treasuries, according to LSEG data. That is historically unusual.
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mikes425
Commander
generally happy in semi-retirement and dividend income-land
Posts: 126
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Post by mikes425 on Sept 5, 2023 23:55:49 GMT
Fearchar , Thanks, appreciate the link! Glad they've endorsed my portfolio. Also my instincts about AI. If there were a narrowcast equity fund I might consider right now, AI (hmm, by happenstance a Blackrock option- IRBO ; )would be one I'd take a serious look at. I know its' potential in my particular trade....But then...I've been burned by sector funds in the past. Still...this time may be different.
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Post by mnfish on Sept 6, 2023 11:56:28 GMT
"To turn positive on long-term bonds, they need to see term premium rise"
From a Rekenthaler article yesterday - "extending maturities during yield-curve inversions has been a reliably profitable strategy. Indeed, it twice (counting the 1970s and 1980s experiences as a single item) delivered some of the highest real returns that 10-year Treasuries have ever recorded."
However, he then writes - "Investors can only know after the fact when inversion-curve peaks have occurred. It’s quite possible that the Federal Reserve will continue to increase short-term interest rates, which would likely generate additional losses for intermediate- and long-term securities."
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Post by retiredat48 on Sept 6, 2023 15:02:34 GMT
"To turn positive on long-term bonds, they need to see term premium rise" From a Rekenthaler article yesterday - "extending maturities during yield-curve inversions has been a reliably profitable strategy. Indeed, it twice (counting the 1970s and 1980s experiences as a single item) delivered some of the highest real returns that 10-year Treasuries have ever recorded." However, he then writes - "Investors can only know after the fact when inversion-curve peaks have occurred. It’s quite possible that the Federal Reserve will continue to increase short-term interest rates, which would likely generate additional losses for intermediate- and long-term securities." This is like saying OTOH the market (in anything) may go up; OTOH it may go down. Cautious pablum, done by thousands of institutions. Fact is, you do not have to "catch peaks or valley points" to do successful investing. So indeed, inversion curve peaks will only be known after-the-fact. Does not mean good value cannot be obtained by adding certain fixed income to ones portfolio. Also consider odds low that short term rates go materially higher. Note...I have not yet moved into ten year space, or corp bond LT FI space yet; suspect rates may go higher. But a 4 3/4% to 5% treasury 10 year yield will be very tempting to me. The tug-of-war on rates being the "billions and billions" the gvt needs to borrow, versus the "billions and billions" sitting in money market and short term bond funds, awaiting deployment into LT bonds. So far, the gvt is losing; MM fund holders winning, by waiting. R48
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Post by mnfish on Sept 7, 2023 12:05:24 GMT
"To turn positive on long-term bonds, they need to see term premium rise" From a Rekenthaler article yesterday - "extending maturities during yield-curve inversions has been a reliably profitable strategy. Indeed, it twice (counting the 1970s and 1980s experiences as a single item) delivered some of the highest real returns that 10-year Treasuries have ever recorded." However, he then writes - "Investors can only know after the fact when inversion-curve peaks have occurred. It’s quite possible that the Federal Reserve will continue to increase short-term interest rates, which would likely generate additional losses for intermediate- and long-term securities." This is like saying OTOH the market (in anything) may go up; OTOH it may go down. Cautious pablum, done by thousands of institutions. Fact is, you do not have to "catch peaks or valley points" to do successful investing. So indeed, inversion curve peaks will only be known after-the-fact. Does not mean good value cannot be obtained by adding certain fixed income to ones portfolio. Also consider odds low that short term rates go materially higher. Note...I have not yet moved into ten year space, or corp bond LT FI space yet; suspect rates may go higher. But a 4 3/4% to 5% treasury 10 year yield will be very tempting to me. The tug-of-war on rates being the "billions and billions" the gvt needs to borrow, versus the "billions and billions" sitting in money market and short term bond funds, awaiting deployment into LT bonds. So far, the gvt is losing; MM fund holders winning, by waiting. R48 Whether or not it's cautious pablum, I imagine that Mstar and Rekenthaler have to be careful. I agree that a 4.75% - 5% 10 year would be tempting and I'll add that Wells Advisors rates Short Term and Long Term treasuries as "most favorable"(and have for awhile) and using a barbell strategy with the two.
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