As always, it is good to sit down to my computer on Saturday to see what the buzz is in the financial markets. Saturday morning I can get the electronic version of Barron's, but the paper copy that is delivered on Sunday is the bomb. I don't know what it is about the paper copy, but I like it even better. Maybe it is because my eyes are tired of staring at a computer all week or that old habits die hard.
Anyway, Barron's is having their round table again. I agree with some of what was said, but other items I beg to differ. Jeffrey Gundlach has some interesting commentary.
Here are a few items he said that made sense with me:
- "The one indicator that is somewhat negative is the yield curve, which has flattened pretty relentlessly for the past year or two as the Fed has been tightening. There’s a narrative out there that says the flattening yield curve isn’t sending any message about a recession, and that couldn’t be more wrong."
- "The strangest thing is that Congress passed a $280 billion tax cut and spending increases so late in the cycle, and with interest rates rising. It’s like a death wish. The U.S. is taking on hundreds of billions of dollars of debt while raising rates, which means our debt-service payments are going to be under serious pressure to the upside."
- "I like the two-year Treasury note. It is so unglamorous, but you’ll get the yield, and you’re probably going to want that liquidity sometime in the next couple of years."
- "Be conservative. I still recommend low-risk, relatively low-duration bonds. "
One thing didn't make much sense to me (WTF). Maybe there is some logic to it, but it wasn't apparent to me. While the US's and Germany's rates are connected in some ways, this sounded like VODOO to me.
- "Rates should be much higher, based on nominal gross domestic product, which probably ran around 5% in the second quarter. But weirdly, again, in this era of quantitative easing, if you average nominal U.S. GDP and the German Bund’s 10-year yield, that’s where the 10-year Treasury yield is. The German 10-year yields 30 basis points. Average that with nominal GDP of 5% and you get about 2.65%. So, 2.65% is my year-end number."
I think tomorrow I'll got to the beach and finish up reading my paper copy of Barron's. We are back to the circus on Monday. Enjoy the weekend!
