Timing the market.
Discussion
Mike,
Bond yields have been low because investors sought safe havens. Germany’s 10-year bund yield dropped to minus 0.2% a couple of weeks after Brexit. In other words, if an investor bought that debt and held it for the ten years, when it matured, he would have earned less than what he paid for them. And he'd be happy to do so, presumably, because it was the lesser of two evils (for him).
The problem that the ECB faces is that the securities which yield less than minus 0.4% aren't eligible for it to buy. That means most have been beyond its remit. I'm not sure what the numbers are now, but a couple of weeks ago, about 80% of German sovereign debt had yields below zero. That will have crept up now, but even so, the pot into which the ECB can dip its cup isn't infinitely deep.
The ECB is also governed about the amount of debt that it can draw from one country, relative to the size of its debt. You could allow more latitude in the types of bonds available to the ECB to buy, but Draghi's comments of a few days ago seem to be implying this won't happen. And if the latitude was introduced, that would mean more debt being bought from Germany, not politically desirable - and increasingly fraught with uncertainty. This (bond bubble) could cause prices to drop, thereby increasing yield and I see this morning, that yields have gone up as a consequence.
http://www.bloomberg.com/news/articles/2016-09-09/...
You asked about dividend yields. If there is a sell off, and there has been - where is the money going? Lipped reported on Friday.. "The Q2 2016 blended earnings growth estimate is -2.2%. Excluding the energy sector, the earnings growth estimate for the index improves to 2.2%."
That's a big differential. The attractive divi payers could struggle, and chucking a wedge into one of the historically good oilers or high yielding income funds may cause disappointment. Hence my point about Vanguard yesterday. Hugely popular, and rightly so, but incredibly US-centric. Investors have poured into equity markets because bond yields have fallen (as referred to by Ozzie's inverse relationship post), but what now? It's going to be fascinating to see where the money goes this week.
As ever, the investment basics apply.
Be happy with your objectives, check your risk exposure and make sure you're suitably diversified. In my opinion (not advice), modestly aspirational, well managed, good income funds, nicely diversified and never claiming to be the ones to punch the lights out, should be a nice banker to have in the back pocket. Sterling has dropped, as we know, making it almost impossible to imagine we won't start seeing inflation (possibly at letter writing levels) in the shorter term but probably without a proportionate rise in rates for savers. I wouldn't commit to that three year saving bond just yet, either.
Interestingly, I spoke with a client yesterday who is seeing this as the moment to sell off some metal after three years of the garage contents remaining off the agenda. Not indicative, certainly, but still interesting to see from a previously self declared buy and hold collector.
Bond yields have been low because investors sought safe havens. Germany’s 10-year bund yield dropped to minus 0.2% a couple of weeks after Brexit. In other words, if an investor bought that debt and held it for the ten years, when it matured, he would have earned less than what he paid for them. And he'd be happy to do so, presumably, because it was the lesser of two evils (for him).
The problem that the ECB faces is that the securities which yield less than minus 0.4% aren't eligible for it to buy. That means most have been beyond its remit. I'm not sure what the numbers are now, but a couple of weeks ago, about 80% of German sovereign debt had yields below zero. That will have crept up now, but even so, the pot into which the ECB can dip its cup isn't infinitely deep.
The ECB is also governed about the amount of debt that it can draw from one country, relative to the size of its debt. You could allow more latitude in the types of bonds available to the ECB to buy, but Draghi's comments of a few days ago seem to be implying this won't happen. And if the latitude was introduced, that would mean more debt being bought from Germany, not politically desirable - and increasingly fraught with uncertainty. This (bond bubble) could cause prices to drop, thereby increasing yield and I see this morning, that yields have gone up as a consequence.
http://www.bloomberg.com/news/articles/2016-09-09/...
You asked about dividend yields. If there is a sell off, and there has been - where is the money going? Lipped reported on Friday.. "The Q2 2016 blended earnings growth estimate is -2.2%. Excluding the energy sector, the earnings growth estimate for the index improves to 2.2%."
That's a big differential. The attractive divi payers could struggle, and chucking a wedge into one of the historically good oilers or high yielding income funds may cause disappointment. Hence my point about Vanguard yesterday. Hugely popular, and rightly so, but incredibly US-centric. Investors have poured into equity markets because bond yields have fallen (as referred to by Ozzie's inverse relationship post), but what now? It's going to be fascinating to see where the money goes this week.
As ever, the investment basics apply.
Be happy with your objectives, check your risk exposure and make sure you're suitably diversified. In my opinion (not advice), modestly aspirational, well managed, good income funds, nicely diversified and never claiming to be the ones to punch the lights out, should be a nice banker to have in the back pocket. Sterling has dropped, as we know, making it almost impossible to imagine we won't start seeing inflation (possibly at letter writing levels) in the shorter term but probably without a proportionate rise in rates for savers. I wouldn't commit to that three year saving bond just yet, either.
Interestingly, I spoke with a client yesterday who is seeing this as the moment to sell off some metal after three years of the garage contents remaining off the agenda. Not indicative, certainly, but still interesting to see from a previously self declared buy and hold collector.
Simpo Two said:
jeff m2 said:
Best defense, run all the "what ifs", diversify against single country risk, even your own.
It's an interesting idea. Bet on every horse on the race and you have to win, right? Then you find out that all the probabilities add up to more than 1.0...But there's one thing I'm convinced of. In every disaster, someone is making money.
So I'm personally around 55% in The US which was up 8% YTD
12% in Emerging Markets Diversified up 20% (led by Latin America)
8% Emerging Europe up 16% (mainly Russia & turkey)
8% Emerg Market Bonds up 12%(sold late July)
So a 1 - 2% drop hurts like hell on my US holdings, but only puts a dent in my profit on my smaller funds.
Yep, there are people making money, although in reality they just protected their positions which they felt needed protecting. They lost less.
A retail investor could do this with a 2x short ETF. I've used one on China before.
I used a lot of 2x long ETFs in 09 quite successfully on the Financial index.
Leveraged long and shorts need to traded, they are not a hold, as they become inefficient if held more than one day. Still profitable with good execution just not close to 2x.
They also become less efficient once as shift happens, like now. (bolted horse)
Closing note...I cannot understand why Draghi does what he does, apparently I'm not alone!!!!
Ginge R said:
My money remains on there being a bit of a serious house price fall, just as well I didn't buy that small place last year.
Would genuinely like to understand your logic behind this.House prices have been driven up by ever cheaper borrowing, meaning people can afford to borrow greater sums than ever before. Interest rates have just dropped again, making borroing even cheaper.
While I don't see a lot of headroom for house prices to increase from current levels, I can't see why they would fall either. Certianly while interest rates remain so low.
CaptainSensib1e said:
Ginge R said:
My money remains on there being a bit of a serious house price fall, just as well I didn't buy that small place last year.
Would genuinely like to understand your logic behind this.House prices have been driven up by ever cheaper borrowing, meaning people can afford to borrow greater sums than ever before. Interest rates have just dropped again, making borroing even cheaper.
While I don't see a lot of headroom for house prices to increase from current levels, I can't see why they would fall either. Certianly while interest rates remain so low.
Just my personal belief, based as much as anything, on the premise of human nature. Import inflation will rise as Sterling remains low, rates will rise, money supply will shift, stock levels will remain low, (unless you're near CrossRail) London prices will continue to drop or increase much more slowly, B2L availability will increase as landlords seek some liquidity.
I was going to buy a probate property last year, it fell through. 25 yards from a beach. It went, last month, for 8% less than they rejected with me. Looking around now, agents are far happier to negotiate pragmatically - in my experience, anyway. Like I said, it's just my personal belief - I could be wrong.
I was going to buy a probate property last year, it fell through. 25 yards from a beach. It went, last month, for 8% less than they rejected with me. Looking around now, agents are far happier to negotiate pragmatically - in my experience, anyway. Like I said, it's just my personal belief - I could be wrong.
Ginge R said:
Just my personal belief, based as much as anything, on the premise of human nature. Import inflation will rise as Sterling remains low, rates will rise, money supply will shift, stock levels will remain low, (unless you're near CrossRail) London prices will continue to drop or increase much more slowly, B2L availability will increase as landlords seek some liquidity.
I was going to buy a probate property last year, it fell through. 25 yards from a beach. It went, last month, for 8% less than they rejected with me. Looking around now, agents are far happier to negotiate pragmatically - in my experience, anyway. Like I said, it's just my personal belief - I could be wrong.
I don't thing you are.I was going to buy a probate property last year, it fell through. 25 yards from a beach. It went, last month, for 8% less than they rejected with me. Looking around now, agents are far happier to negotiate pragmatically - in my experience, anyway. Like I said, it's just my personal belief - I could be wrong.
An increase of int rates which I'm sure Carne will implement when inflation gets over 2.5 will cause the I of the P & I to increase thus increasing the monthly payment and put downward pressure on selling prices. Strong demand side but if people can't get the loans then demand becomes less relevant.
I don't see how central banks can raise rates significantly. Fundamentally, existing mortgages become unaffordable for many if rates go up. Possibly not immediately, but certainly as fixed rate products expire. Falling house prices and negative equity / repossessions would soon follow. Given that so much was put into propping up house prices following 2008, surely too much is invested to let it fail now? Keeping rates low, maintaining nominal house prices but letting inflation erode value in real terms seems to be the only way forward to me. Sure it hurts for savers / those with money invested, but the alternative would disasterous, surely? This is, of course, based on my limited understanding.
Personally, I believe they should have let it all collapse in 2008 and rebuilt from a solid foundation, rather than keep shifting the bricks around on the quicksand for years to come.
Personally, I believe they should have let it all collapse in 2008 and rebuilt from a solid foundation, rather than keep shifting the bricks around on the quicksand for years to come.
Edited by rsbmw on Monday 12th September 15:44
Ginge R said:
Just my personal belief, based as much as anything, on the premise of human nature. Import inflation will rise as Sterling remains low, rates will rise, money supply will shift, stock levels will remain low, (unless you're near CrossRail) London prices will continue to drop or increase much more slowly, B2L availability will increase as landlords seek some liquidity.
I was going to buy a probate property last year, it fell through. 25 yards from a beach. It went, last month, for 8% less than they rejected with me. Looking around now, agents are far happier to negotiate pragmatically - in my experience, anyway. Like I said, it's just my personal belief - I could be wrong.
Maybe, I think it'll just be another period of stagflation personally so they'll drop in real terms but not price wise as such. I was going to buy a probate property last year, it fell through. 25 yards from a beach. It went, last month, for 8% less than they rejected with me. Looking around now, agents are far happier to negotiate pragmatically - in my experience, anyway. Like I said, it's just my personal belief - I could be wrong.
6 months ago the market around me (SW London/Surrey) went a bit flat and prices were dropping - in the last couple of months things are clearly moving again with house selling fairly promptly and prices strengthening.
Interestingly, contrary to your anecdote, my own experience of buying in holiday locations is the opposite - bought a place last year and was able to get it at a significant discount to market...tried to buy similar 200 yards away the other day and the Agent's attitude was totally different as they're been a lot of interest.
If we could all predict the future, eh?
On a more general note, and linked to the thread, the Bank of England has just released more details of its corporate bond asset purchase scheme.
http://www.bankofengland.co.uk/markets/Pages/apf/a...
On a more general note, and linked to the thread, the Bank of England has just released more details of its corporate bond asset purchase scheme.
http://www.bankofengland.co.uk/markets/Pages/apf/a...
jeff m2 said:
I don't thing you are.
An increase of int rates which I'm sure Carne will implement when inflation gets over 2.5 will cause the I of the P & I to increase thus increasing the monthly payment and put downward pressure on selling prices. Strong demand side but if people can't get the loans then demand becomes less relevant.
What will drive inflation higher though?An increase of int rates which I'm sure Carne will implement when inflation gets over 2.5 will cause the I of the P & I to increase thus increasing the monthly payment and put downward pressure on selling prices. Strong demand side but if people can't get the loans then demand becomes less relevant.
True, the price of goods we import will increase as the pound drops, but tinkering with our monetary policy won't really affect that.
If we see some significant wage inflation filtering through into the economy then we might see rates go up, but I can't see what the catalyst for that would be. And if wages do rise that would be supportive of house prices anyway.
Ozzie Osmond said:
Simpo Two in the other thread said:
Just realised that maybe one reason why the markets are doing well is because interest rates are so low - making shares more attractive that perhaps they really deserve to be. Something has to go horribly wrong sometime, but I can't predict what or when. Which makes me as accurate as every financial pundit!
To my mind the whole "value of money" is in question.In my simple mind,
- If cash money you are holding has no investment value (interest rate zero)
- how can money which is lent to people have such high value? (20% p.a. interest on credit cards, >100% interest at Wonga)
My own version of "risk control" in this environment is to make sure you're not left holding a big pile of worthless cash money when the sky falls in! And I can't help thinking all of that debt out there is going to concertina into massive defaults at the same time. Clearly if the big banks are sucked down the plughole that would massive effects across everything. No wonder there's an asset bubble - at least if you own a "thing" (which includes shares) it will always have whatever fundamental value other people ascribe to it from time to time.
CaptainSensib1e said:
fishseller said:
very valid point but if you need to cash in your assets shares or property what do you trade with if cash is worthless ?
Gold seems to be popular in turbulent times. Certainly better than holding cash if you think the sky is going to fall in.Interesting read kind of relevant to this thread, don't agree with his technical outlook in part 3, well some of it, but hard to argue against the points in part 1 or 2.
https://northmantrader.com/2016/09/07/time-to-get-...
https://northmantrader.com/2016/09/07/time-to-get-...
twinturboz said:
Interesting read kind of relevant to this thread, don't agree with his technical outlook in part 3, well some of it, but hard to argue against the points in part 1 or 2.
https://northmantrader.com/2016/09/07/time-to-get-...
Due to the part covered in the first 2 sections (and partially the 3rd) is it worth adding some gold into a portfolio soon, to cover the risk of possible recession in a year or two?https://northmantrader.com/2016/09/07/time-to-get-...
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