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U.S. Bond funds lose a record 47.2 billion ln in June (Outflows from Trim Tabs)
Reply to @Charles: Hmm - The magnitude surprised me a bit. More than normal rebalancing. Allocation models must have changed. What increased in place of bonds (which probably includes short term and ultra-shorts)? ... Cash at half-percent? ... More equities? ... Not gold I'd think - judging by its recent action.
The rapid nature of the move in interest rates is more than a little concerning and I think reflects the scenario that Guggenheim CIO Scott Minerd said a couple of weeks ago: "The U.S. Treasuries market could now be described as a Ponzi market. The only reason investors would buy Treasuries today is that they expect the Federal Reserve will buy them at higher prices in the future. This reasoning will come unstuck, however, once the Fed curtails its asset purchase program. We do not know when the Fed will taper QE, but the longer its expansionary policy continues, the more volatility-inducing pressure will build. That means stock and bond markets appear to be in for a rough ride over the next six months or so."
The whole thing also reminds me of Taleb's discussion: "Complex systems that have artificially suppressed volatility tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite. These artificially constrained systems become prone to "Black Swans" -- that is, they become extremely vulnerable to large-scale events that lie far from the statistical norm and were largely unpredictable to a given set of observers."
Again, the morning looks ugly across pretty much all asset classes. The move in interest rates looks like it's gathering momentum and really, at what point does it become considered "disorderly"? The largest move in the 5 year in 50 years would - I think - qualify as disorderly.
I think this situation is creating buying opportunities for certain things and certain sectors, but really only for those who have an investment time horizon beyond the short term.
The Snowden situation - I think - also could create further geopolitical tension that may effect markets as the situation escalates today.
Reply to @scott: Agree with your first point. (Things ain't always what they seem:-) Will say: 2.64% on the ten-year this morning looks whole lot more appealing than 1.5% a year ago.
Comments
http://blogs.barrons.com/incomeinvesting/2013/06/13/treasuries-now-a-ponzi-market-guggenheim-cio/
The whole thing also reminds me of Taleb's discussion: "Complex systems that have artificially suppressed volatility tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite. These artificially constrained systems become prone to "Black Swans" -- that is, they become extremely vulnerable to large-scale events that lie far from the statistical norm and were largely unpredictable to a given set of observers."
http://www.foreignaffairs.com/articles/67741/nassim-nicholas-taleb-and-mark-blyth/the-black-swan-of-cairo
Again, the morning looks ugly across pretty much all asset classes. The move in interest rates looks like it's gathering momentum and really, at what point does it become considered "disorderly"? The largest move in the 5 year in 50 years would - I think - qualify as disorderly.
I think this situation is creating buying opportunities for certain things and certain sectors, but really only for those who have an investment time horizon beyond the short term.
The Snowden situation - I think - also could create further geopolitical tension that may effect markets as the situation escalates today.
Will say: 2.64% on the ten-year this morning looks whole lot more appealing than 1.5% a year ago.