BSJR - Living In Never Never Land

Summary

• When the height of the entire Yield Curve is the 6-month Treasury Bill, you know that you are living in some very strange place.
• There are those that suggest that some kind of “pivot,” by the Fed is on the horizon. I am not in this camp, and do not expect to see this occurrence.
• What may happen, what I hope happens, is a move by the Fed to just “Stop,” for a period of time, and let both the markets and the economy cool down.

When the height of the entire Yield Curve is the 6-month Treasury Bill, you know that you are living in some very strange place. In fact, our six-month Bill is now yielding 134 basis points more than our 10-year Treasury and 120 basis points more than our long bond. You have to wonder about the bond market’s expectations, when things are contorted in this very strange posture.

There are those that suggest that some kind of “pivot,” by the Fed is on the horizon. I am not in this camp, and do not expect to see this occurrence. What may happen, what I hope happens, is a move by the Fed to just “Stop,” for a period of time, and let both the markets and the economy cool down.

The Fed has shifted borrowing costs into ranges that we have not seen in a decade and there is plenty of collateral damage that has occurred. This has taken place in both the bond and stock markets, and it has been an overhang of serious proportions.

The cost of borrowing is now having a very serious effect on both people, and on corporations. It is also seriously affecting investment decisions as the Fed prolongs its fight against Inflation and as the government is running up against the debt ceiling.

These are both two very serious issues, in my opinion, and both could wreak havoc with corporate earnings and revenues, the real estate markets, the economy, and all of the markets. Consequently, investing is becoming a very complicated procedure, as all of these issues themselves play out.

“All the world is made of faith, and trust, and pixie dust.”

-Peter Pan

I do note that some calm has returned to the markets recently, which I find reassuring. Year-to-date, according to Bloomberg, the DJIA is up +2.28%, the S&P 500 is up +5.47% and the NASDAQ is up +9.69%. The red numbers of last year seem to be fading and the calls for some sort of imminent recession seem to be dwindling as well.

Then in the bond markets, again according to Bloomberg, for 2023 we see Treasuries up +2.67%, Investment Grade Corporates up +3.97%, High Yield up +3.66% and Municipals up +2.86%. It may just be the “pixie dust” but my sense is that the markets are making their long awaited turn.

My advice now is not to go stark raving mad but perhaps to put a little bit of money back into the markets. One useful strategy is to buy some of what you already own, if it is in a loss position, and lower your average cost and perhaps raise your yield. It may help you to climb out of the red ink of 2022 sooner than later.

I continue to advise caution and careful planning as the Fed, or the government, could still fire slings and arrows as “good sense” is not used and as caution gets thrown to the moon. Let’s all hope that this does not happen.

“That’s right, Peter, second star to the right and straight on till morning.”-Tinkerbell

So, straight on we go!

Original Source: Author

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

For further details see: