Risk/Reward Vol. 348
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
A spate of selling on Thursday brought the S&P 500 and the Dow Jones Industrial Average to their lowest close in two months. Whether the cause was the "Mother of All Bombs", the threat of another North Korean nuclear test or market fatigue in general is unclear. However, I see no reason for panic. Both indices are up over 3.5% year to date and continue to trade in a tight range. To me, the more interesting story is the yield on the US Ten Year Treasury Bond ("10Year"). On Thursday, the yield crept below 2.28% for the first time since November. At the same time, the spread between the 2Year Bond and the 10Year shrunk to a 5 month low. What this tells rate watchers like me is that Mrs. Bond expects a rise in short term rates but does not see significant economic growth in the medium or longer run---and certainly not growth in the 3-4% range touted by The Donald. This is consistent with my personal opinion (see Vol. 338 http://www.riskrewardblog.blogspot.com/ ) and my investment approach. Not surprisingly, my interest rate sensitive holdings did well this week.
Those who pay attention to interest rates also pay attention to the musings of the reigning Bond King, Jeffrey Gundlach. Far from shy and retiring, Mr. Gundlach shares his thoughts during periodic webcasts, replays of which are available online. During his most recent webcast (April 4th), Gundlach predicted that the yield on the 10Year will dip below 2.25% in the short term. He foresees rates increasing in the back half of the year, but does not see the 10Year hitting 3% in 2017. Gundlach predicts a bear bond market if the yield rises to that number. As noted in an earlier edition, erstwhile Bond King, Bill Gross, sees the bear bond market tipping point at any rate above 2.6% on a consistent basis. Personally, I am in Gross' camp on this one. Further, given the capital appreciation I have achieved recently, I plan on exiting my bond -like portfolio if and rilwhen a move toward 2.6% is confirmed.
Oil prices rose seven straight days before taking a breather at week's end. This win streak was the longest in the oil patch since 2012. News from OPEC that its members were likely to extend their production cut for another 6 months plus news that domestic oil supplies had shrunk contributed to the price increases. I was so encouraged I bought BP and Shell (RDS/B). My one disappointment this past week was HCLP which took back much of my double digit gains---for reasons which remain unexplained. Indeed, early in the week HCLP received some positive commentary so its tumble late in the week came as a surprise. This is one of the major downsides to investing in a stock that is not widely followed or covered. I remain in the green on both of my HCLP positions. I will not tolerate any movement into the red.
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