The Hartford Funds put out a series of 50 charts on Strategies for the Second Half. There is no text, these are all graphics, but with text on them. Here are some of the charts I found interesting. Comments are mine. The order changed from the presentation.
Duration Risk
I picked up the Hartford link from Jonathan Tepper who made this Tweet: “Now that we have extraordinarily low yields across the world, we have the highest duration risk ever. Nice.”
Valuations Expensive
The US has among the most expensive valuations in the developed world. Blue highlights mine.
US Valuations vs Japan
Highlight mine. Japan is attractive. The primary issue is whether to be yen hedged or not. A balanced approach is to be partially hedged to yen exposure. I have a position in Japanese equities.
Japan is Unloved
It does not pay, on average, to chase rich valuations. Those who have, feel good, for now.
Tighter Conditions in China
A financial accident of some sort has been on deck in China for a long time. It will spill over into world growth when it hits.
ECB Tapering All Talk But No Action
ECB QE has thrown a lifeline to European Zombie corporations. The QE is also keeping the Italian bond market from blowing up. Links below.
Drug Revolution
THis is the best news in the bunch.
Debt-to-GDP
Some claim that debt-to-GDP is not a problem citing 1938-1942 as proof. Excuse me but they fail to mention demographics, a baby boom, and rapidly increasing productivity. Now we debt, very poor growth prospects, asset bubbles, and an aging population to take care of.
Interest Rates May Stay Low
The best reason to expect rates to stay low is the preceding chart. Inflation? Please consider Steen Jakobsen on the Next 30 Years: “Everything is Deflationary” Thirty years is arguably too long a timeframe. The next ten years isn’t.
What Happens if The Fed Hikes?
In the unlikely event the Fed hikes another 1%, look at the left side of the chart for what is likely to happen. Look at the right side of the chart if you think the Fed will cut.
Global Risks
Global risks are high and rising. Ignoring asset bubbles, the worst spots for risk are the EU banking system and the unsustainable growth balancing act in China.
Related Articles
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- EU Deposit Insurance, a Bank Crisis in Italy and Greece, and the Coming Ban on Cash
- Target2 and Secret Bailouts: Will Germany be Forced Into a Fiscal Union with Rest of Eurozone?
- Fuse is Lit! Target2 Imbalances Hit Crisis Levels: An Email Exchange With the ECB Over Target2
Mike “Mish” Shedlock
Who would buy a 30 year treasury when a mere 1% rise in interest rates wipes out almost 18% of your investment?
Talk a a risk/reward not worth taking. Same with municipal bonds (6% loss) on top of courts recently ruling that bond holder are now LAST in line and pensions are first in line.
The charts really seems to say there are very few places to hide.
Extremely short duration bonds. The pound. Emerging markets. Cash. Gold. Japan/emerging markets.
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“Who would buy a 30 year treasury when a mere 1% rise in interest rates wipes out almost 18% of your investment?”
An optimist?
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You can always hold it until maturity and be guaranteed a positive return.
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Mish,
Since it looks like the Fed seems to have done a great job (by making the banks safe) by paying interest on excess reserves, why did the ECB not choose to do this? Does it also imply that if they had taken the same route ECB banks also would be safe and sound? Does the Fed’s route have any other unintended consequence?
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I do not know why Draghi thought negative rates would spur lending when it eats into bank profits. We can say that interest rate suppression at the Fed and ECB created asset bubbles.
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“Since it looks like the Fed seems to have done a great job (by making the banks safe) by paying interest on excess reserves,”
…
IOER is nothing more than a (backdoor) bailout / handout to Wall Street.
Lending standards have improved … but that has nothing to do with the Federal Reserve.
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Given that the world uses USD as a reserve currency and much of that cash will remain overseas and never spur inflation in the US, would it make more sense to plot US debt against global GDP after we left Bretton-Woods in 1976 to assess USD stability and inflation risk?
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As long as interest rates for low risk investments return significantly less than inflation, after taxes, the middle class will decline, business starts will decline and growth rates will stagnate. This is the other side of Fed “policy.” It seems apparent that with the Treasury having to service $20 Trillion of debt, there will be no serious increases in interest rates permitted by the Fed. It is, of course, an arm of “government,” which has spent far beyond its capacity to guarantee repayment other than in degraded currency.
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“Some claim that debt-to-GDP is not a problem citing 1938-1942 as proof.”
Japan is proof enough.
The federal government does not have any debt. At least in the sense that you have to trade valuable assets to pay it down. The treasury always just prints the money to pay the debt. That’s money out of thin air. That’s why we’ve been able to slash tax rates while running deficits for about 50 years now. There will never come a time where we have to increase taxes to pay off the debt.
Private debt to GDP is a far more important and concerning issue. Private debt to GDP was certainly far lower in the late ’30’s than it is today.
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True, but only as long as foreigners are willing to denominate their loans in USD.
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Actually, no. But I’ll leave it to John S. to explain why.
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Is this the John Sellars that worked at Cadnetix in the 80s?
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Reblogged this on World4Justice : NOW! Lobby Forum..
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The charts really seems to say there are very few places to hide. Extremely short duration bonds. The pound. Emerging markets. Cash. Gold. Japan emerging markets….
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That drug chart is interesting. I wonder if it is some delayed response to the Prescription Drug Act 2003.
The govt being the drug buyer of first and last resort.
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