Original Conversation
Timestamps
What Happened Last Week – 00:09
What’s Happening Next Week – 02:07
Original Portfolio Update
Original Comments
Original Conversation
Timestamps
What Happened Last Week – 00:09
What’s Happening Next Week – 02:07
Original Portfolio Update
Original Comments
13 Responses
The bottom line, whether there is a sweep or not, seems to be that we get a correction in equities if the Democrats win and bullish continuation in stocks if the Republicans do, but I’m not so sure how exactly we can get such bullish results in equities with the 10y potentially up 100 bps to 5% or so. Surely that would be a bearish pressure on equities.
My question is this, though: are we no longer worried about the large bond market supply as a headwind? With a Red sweep it shouldn’t matter because there’s no interest in bonds anyway, but that might not be the outcome of the election. Thanks.
The earnings repricing would outweigh the multiple contraction, certainly at first. So, it’s either stocks up first, then back down, or stocks down and then back up.
Harris: down, then back up; Trump: up, then down (bond yields)?
I note there was a purchase of 27 shares of SPY on the 17’th, is this correct? I ask because somehow I missed the announcement but I can only guess that it was meant to be implicit in the screenshot sent out on the 17’th (or possibly I missed something). Related to this, in general, if for motives of personal money allocation or because I missed a trade announcement as in this case, does it make sense to adjust my balances to match those of the portfolio at any price when my portfolio is not aligned or to wait for some sort of pull back? This question I can imagine will most likely be answered with “it depends”, but a generic answer would be appreciated.
Read the post: “We are also adding 5% only to SPY, as we feel that we are underweight equities and that a real spike on election result anticipation could now take place.”
Also: price has not moved, if anything it is lower, so you could do it now if you are so inclined. We just feel that the odds favour having equities rather than bonds for the election, as equities will come back regardless. Bonds won’t if Trump wins and has a sweep. That might not happen, but we just don’t want to take the chance.
Thanks you Nick, very much appreciate the answer.
With a red sweep, could Trump force the Fed to enact YCC to lower long duration yield and manage government expense?
Certainly not in the first few days and probably not during Powell term. Therefore nothing to worry about for months and months.
One of the better synopsis you guys have done. Bravo!
At what point would you start thinking about getting back into longer duration bonds? Maybe 4.25% on the 10 yr? 4.5%?
I think there is a point where the 10 yr starts to break things….in residential real estate, CRE, banks, PE, etc… I think maybe the 10 yr can run up past 4.5% a little….maybe even close to 5%. But it will be short lived. Then it will likely come back down again just like it did in Oct ’22, Oct ’23, and May ’24. 10 yr didn’t stay above 4% long. I don’t think the 10 yr can sustain much above 4.5% because it causes to much damage everywhere in markets. Really be surprised if it can hold above 4.25% for more than a few months. Even with a red sweep. But I also don’t think it falls too low either. Maybe a range between 3.75%-4.25%. Just my opinion. Thoughts?
I don’t understand who you think is going to buy a few trillion of them every year, forever, to stop them going up? We had decades of real rates around 4%. We can easily revisit that world. All I am saying is that I don’t think long duration will be on the radar for a very long time unless the curve goes at least 75-100bp positive and leveraged buyers get nice positive carry.
Thanks Nick for response, good points.
It we just hit 5% on the 10 yr and it stays there for a long time, let’s just say its going to be very, very interesting for residential real estate, CRE, private equity, corp bond rollovers, private credit, etc… We had a world built on zero rates from 2009-2022. It’s going to be very interesting to watch it run on a 5% 10 yr.
It does not mean they go to 5% or above. If they manage to contain inflation to around 2%, then a % Fed Funds rate is not out of the question and therefore 10s around here (4.25% today) are even cheap. The big question is if they will manage that. We have built in no margin of safety, nor are we even beginning to discuss reducing the deficit. Therefore the risk (not necessarily the probability) is that we have further legs higher in yield. It’s that risk I am worried about.