Monthly Archives: December 2016

Our November Results – The Game Has Changed

nov-2016

Last month was a very eventful month that saw drastic moves in all major asset classes.

Following Donald Trump’s victory in the US presidential elections, market sentiment changed not over weeks or months, but over hours and days. The vast majority of mainstream media and sell side analysts were dead wrong in their predictions – both in predicting who would win and in how financial markets would react if Trump won.

In the days that followed Trump’s victory, markets showed that investors are expecting heavy spending on infrastructure, tax cuts for both companies and individuals, and less onerous government regulations. As such, many sectors rallied strongly for several days, and all major US stock market indices reached new highs. It remains to be seen which of these policies are actually implemented and to what degree, but in the meantime it would be foolish to fight the tape.

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Global Bond Funds Suffer Worst Ever Meltdown – But We Feel Fine

Just over a month ago, we pointed out that the tide was turning on negative yields:

LINK: What Happened to Negative Yields?

The turning tide has become a tidal wave:

LINK: Bonds Suffer Worst Ever Meltdown

Here are the two month returns for the Vanguard Total Bond Market ETF (the most popular bond ETF: BND US), the US 10 year note, and the German 10 year bund:

bond-comp-nov2016

Now, these are not cataclysmic draw downs, but the effect on investor psychology can not be discounted. Bonds have had a wonderful 30 year run, and bond funds have seen massive inflows. But nothing lasts forever, and market movements can become self fulfilling prophecies, especially when it comes to crowded trades. Losing money on bonds is not something that this generation of investors are used to, and outflows from bond funds will lead to forced selling, which will lead to further pressure on bond prices, which will lead to further bond fund redemptions, which will lead to… I think you get the point.

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