Post by FD1000 on Jan 19, 2024 15:13:40 GMT
(seekingalpha.com/article/4663358-time-to-lock-in-yields?mailingid=34033001&messageid=2850&serial=34033001.3471)
Jan. 17, 2024 3:54 PM ET50 Comments
Alpha Gen Capital
Investing Group Leader
Summary
* We likely see some semblance of a harder landing next year while inflation continues to fall - with rates falling faster.
* The story of 2024 will be the end of the inflation story and the focus on cutting rates while growth slows dramatically.
* Bonds look favorable compared to stocks, especially international stocks, as interest rates are set to come down.
* Our top investing ideas are muni closed-end funds which trade at historic discounts and will slingshot as short-term rates continue to fall and distributions are raised.
Takeaways:
* The Fed will likely cut rates quickly but the risk is that they don't cut as fast as the market expects. It will be difficult for them to cut faster so the risk is to the downside there.
Corporate margins are falling thanks to de-globalization and shipping concerns coupled domestically with wage costs as the advantage shifts from corporate to labor. Reduce Low moat equity exposure
* International stocks are now extremely cheap relative to U.S. stocks - about as cheap as they've ever been. And interestingly, the larger the better the relative valuation. Long: EFA & EEM, short SPY
* Bonds look very favorable relative to stocks, especially U.S. stocks. The implication would be to shift the asset allocation from stocks to bonds but within stocks, according to the last bullet point, shift to international, especially emerging markets. Long: EDV, IGLB, SPLD, FIGB
* In bonds, keep up quality like investment grade bonds. The allocations made to treasuries over the prior months look to be well-timed but now you must be willing to take yields sub-4.0% to lock in yields for more than 5 years. Long: IGLB, FIGB, FCOR, BSCX
* In closed-end funds, or CEFs, discounts remain very wide in munis and we think that remains the trade for 2024. The top picks change daily so follow the daily notes and Weekly Commentaries but for the most part, you could throw a dart or follow Saba's lead. Long: NMZ, NMCO, RFMZ, BMN, ETX, MMD
* We would continue to avoid higher-risk, lower quality areas of the bond market, especially within CEFs as a new default cycle has started. I see relatively no advantage for going into the lower quality areas of the bond market on a risk-adjusted basis. Spreads are just too tight. Avoid high yield and reduce floater exposure
* The Mag7 stocks look very reminiscent of the Nifty Fifty from the 1970s. Today, they sport an average P/E of more than 50x earnings. This for companies that are already $2T+ in market cap. This is being fueled by AI euphoria. Underweight Mag7
=============
FD:
* US stocks are not all SPY+QQQ and just because something is cheap (P/E) is doesn't mean it would do better in 2024 (we have seen this recommendation for several years already).
* Short SPY? I never short
* "avoid higher-risk, lower quality areas of the bond market" that maybe OK for "simple" indexes but we have plenty of funds/managers that can generate a better risk/reward than plain vanilla indexes.
Jan. 17, 2024 3:54 PM ET50 Comments
Alpha Gen Capital
Investing Group Leader
Summary
* We likely see some semblance of a harder landing next year while inflation continues to fall - with rates falling faster.
* The story of 2024 will be the end of the inflation story and the focus on cutting rates while growth slows dramatically.
* Bonds look favorable compared to stocks, especially international stocks, as interest rates are set to come down.
* Our top investing ideas are muni closed-end funds which trade at historic discounts and will slingshot as short-term rates continue to fall and distributions are raised.
Takeaways:
* The Fed will likely cut rates quickly but the risk is that they don't cut as fast as the market expects. It will be difficult for them to cut faster so the risk is to the downside there.
Corporate margins are falling thanks to de-globalization and shipping concerns coupled domestically with wage costs as the advantage shifts from corporate to labor. Reduce Low moat equity exposure
* International stocks are now extremely cheap relative to U.S. stocks - about as cheap as they've ever been. And interestingly, the larger the better the relative valuation. Long: EFA & EEM, short SPY
* Bonds look very favorable relative to stocks, especially U.S. stocks. The implication would be to shift the asset allocation from stocks to bonds but within stocks, according to the last bullet point, shift to international, especially emerging markets. Long: EDV, IGLB, SPLD, FIGB
* In bonds, keep up quality like investment grade bonds. The allocations made to treasuries over the prior months look to be well-timed but now you must be willing to take yields sub-4.0% to lock in yields for more than 5 years. Long: IGLB, FIGB, FCOR, BSCX
* In closed-end funds, or CEFs, discounts remain very wide in munis and we think that remains the trade for 2024. The top picks change daily so follow the daily notes and Weekly Commentaries but for the most part, you could throw a dart or follow Saba's lead. Long: NMZ, NMCO, RFMZ, BMN, ETX, MMD
* We would continue to avoid higher-risk, lower quality areas of the bond market, especially within CEFs as a new default cycle has started. I see relatively no advantage for going into the lower quality areas of the bond market on a risk-adjusted basis. Spreads are just too tight. Avoid high yield and reduce floater exposure
* The Mag7 stocks look very reminiscent of the Nifty Fifty from the 1970s. Today, they sport an average P/E of more than 50x earnings. This for companies that are already $2T+ in market cap. This is being fueled by AI euphoria. Underweight Mag7
=============
FD:
* US stocks are not all SPY+QQQ and just because something is cheap (P/E) is doesn't mean it would do better in 2024 (we have seen this recommendation for several years already).
* Short SPY? I never short
* "avoid higher-risk, lower quality areas of the bond market" that maybe OK for "simple" indexes but we have plenty of funds/managers that can generate a better risk/reward than plain vanilla indexes.
