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Did Ackman Just ‘Ring the Bell’ on Bond Yields?
Over the weekend – I made the case for investing in fixed income. I think there’s a compelling longer-term opportunity for investors – where fixed income warrants exposure in your portfolio. Turns out, it may not be just me thinking this way. For example, last week I referenced Howard Marks’ latest memo. He explained how some are offering equity-like returns for investors (e.g., above 8% for non-investment grade debt). What’s more, Warren Buffett said he was increasing his exposure to bonds (at the short and long-end) a couple of months ago. Today billionaire investors Bill Ackman and Bill Gross were sounding the horn. Question: are we getting closer to a near-term peak in long-term yields?
Investors Start Weighing the Risks
Investors have hit pause on equities – evaluating a new set of risks. For example, the S&P 500 is now trading close to the same level it was at the end of January. 8 months of gains gone! The world’s largest index is up ~10% year to date… losing 2.4% this week. When you consider the S&P 500 lost ~19% last year…. it has not been a good two years. This post looks at why the outlook has deteriorated with 4 key charts: (i) 10-year yield; (ii) 10-2 yield curve; (iii) VIX; and (iv) gold – which touched $2,000 this week. What does it all mean?
Why Powell Oscillates b/w Dovish & Hawkish
Is Powell dovish or hawkish? The answer is he is both. And it’s intentional. Part of the Chairman is looking in the rear-view mirror (strong jobs, GSP growth, wage pressure and inflation); and part of him is looking ahead (weaker growth; falling jobs; lower inflation). He straddles both sides. But what she he pay more attention to? The answer is the latter – but he can’t ignore the former. That said, I also think the Chair’s choice of language was interesting. He believes above trend growth and strong jobs are what’s causing inflationary pressure – maybe in part. But I will argue it’s the lagging effect of monetary policy… when you increase money supply by 40% in just 2 years.
Rethinking Asset Allocation
Last week we were treated to another thought provoking memo from Howard Marks. Apart from Warren Buffett and Stan Druckenmiller – very few investment managers boast a better 40+ year record than Marks. These investing legends rarely speak. But when they do – pay close attention. Marks’ note was follow-up to his previous memo titled “Sea Change”. Here’s the TL;DR: investors need to re-think their longer-term investment strategies. He is of the view the next decade (or more) won’t be the same as the last. A rising tide is unlikely to lift all boats. However, this also brings meaningful new opportunities for double-digit returns. We just need to start looking in different ‘pockets’.