thoughts as we finish this 4th Week of September 2021
If the plan doesn’t work, change the plan but never the goal.” Anonymous
This is the most important event for you this week: bond prices, and the bond yields that move in the opposite direction to the price. When bond yields go up…like today (from 1.341% to 1.45%) the price of 10-Yr bond will go down in proportion to the yield increase. Most people understand how stocks work, but bonds befuddle just about everyone. Don’t worry…I understand them.
One of my favs, DoubleLine CEO Jeffrey Gundlach, shared last week: “Whenever the yield on 30-year Treasury bonds starts to reach the 2.00% mark, it seems that the Federal Reserve steps into the market and it appears yield curve control is underway. If this continues, it will be hard for the 10-year bond to hit 2%.”
The economy finds itself in a strange place 18 months after the pandemic began and Gundlach noted that nominal GDP has come all the way back to pre-pandemic levels, but there are still 5.3 million fewer people working. Moreover, almost the “entire source” of growth has come from $3.7 trillion of stimulus from Congress. There is still another $1.3 trillion or so of stimulus that has yet to be spent. As big a number as this is, Germany and Japan have shelled out more on pandemic-related stimulus.
The sheer amount of money spent during the public health crisis is 2/3’s more than was spent in the Great Financial Crisis of 2007-2009 (GFC). Of equal significance was the fact that the money was dumped into the system four times faster than during the GFC. This has been distorting how strong our economy and is why so many say “I don’t feel well: why is Wall Street telling me I am doing great?
All sorts of distortions in the economy are surfacing. Foreclosures are “at a multi-decade low,” but delinquencies are high, Gundlach said. “The government has the tiger by the tail,” but it can’t get off or it will get “mauled." Housing affordability is low as a percentage of income even though home prices are up, and rents are soaring.
Gundlach has favored European stocks over U.S. shares because they are better values: over the last year, their performance has been almost the same, “but that’s a “huge trend change,” he added. “Once the dollar starts to fall, we think European stocks will break out.” Why does this matter to you? I’ll be buying bonds if this continues.
Required Disclosures: Always read the fine print! This content reflects the opinions of Julie Skye and is subject to change without notice. This content is for informational and entertainment purposes, and it is not a recommendation regarding the purchase or sale of any security. There is no guarantee that any statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Securities investing involves risk, including the potential for loss of principal. There is no assurance any investment plan or strategy will be successful.
What sent the market into a 1,000-point slide on Monday? Evergrande, which is not looking so grand these days: here are some fun facts about this behemoth:
· Evergrande is the 2nd-largest property developer in China and is on the brink of defaulting on its loans. · It owes money to hundreds of banks and financial firms, & if it fails to pay its loans, they will suffer. · Evergrande owns more than 1,300 real estate projects in China & has constructed more than 1,300 projects. · Evergrande is $300 billion in debt, the most out of any company in the world. · Around 12 million homeowners live in properties built by Evergrande. · More people live in Evergrande properties than in any of the following countries: Greece (population 10.4 million); Portugal (10.1 million); Cuba (11.3 million); or Sweden (10.1 million). · Evergrande manages enough land to cover the entire area of Manhattan…23 square miles. · Evergrande is indirectly responsible for 3.8 million jobs, which is enough to employ nearly every single person who lives in the city of Los Angeles (population 3.98 million or the population of Connecticut. · Evergrande's debt load is equivalent to 2% of China's GDP and is bigger than the GDP of Finland; New Zealand; Qatar; or Hungary.
😲 Why does this matter to you? As Rodney Dangerfield would say, “Just how big is it?” It is big. https://www.businessinsider.com/what-is-evergrande-china-real-estate-giant-scale-perspective-2021-9
China’s central bank says all cryptocurrency-related activities are illegal and vows harsh crackdown. The PBOC also said that all overseas cryptocurrency exchanges providing services in mainland China are also illegal. It’s not the first time China has gotten tough: earlier this year, Beijing announced a crackdown on crypto.
☹ Why does this matter to you? Sorry to have two stories on China…but if the world’s 2nd largest economy comes out on the other side of an emerging asset class like bitcoin…that has to leave a mark. Lehman Brother’s default sell-off the financial crisis…so we will pay attention to this developing story.