Friday, July 8, 2016

Search for Yield

Dividend stocks are the new high yielding bonds.  The liquidity has to find a home somewhere.  When you have the ECB and BOJ pumping trillions into the global financial markets, that money has to go somewhere.  And it's going from European and Japanese sovereign debt to US sovereign debt which then goes to dividend paying stocks.  Trickle down economics working overtime.

Everyone is desperately searching for yield because bond yields are tiny.  That is why you have bond funds going out on the maturity curve to get higher yields.  Oh, the capital gains are a nice little boost too.  Haha. A stronger market is doing nothing to the long bond's continuous rally, and of course, defensive stocks are working almost every day.   It is getting close to the inflection point because these defensive stocks and long bonds are getting massively overvalued, but they act like Teflon.  I believe we will hit a top in the long bond and utilities within 6 weeks.  It is going to be tough to catch a top in those markets but it seems very close.

Brexit is exactly what this market was looking for.  A great excuse to take rate hikes off the table and to print more money.  And you thought Janet Yellen would commit career suicide and help Donald Trump win the election by tanking the market?  Hell no.  She will pull a Bernanke circa 2012.   Bernanke came out with an off the wall, out of nowhere acutely timed QE just to boost the markets ahead of presidential elections to ensure his guy, Obama, would get elected.  This time, Yellen will be printing for Hillary Clinton, hoping that a boost in the stock market will seal the deal for her candidate.

With no rate hikes this year, and a potential for a rate cut or very dovish talk from Yellen in upcoming FOMC meetings, all the monetary forces are in the market's favor.  The BOE, BOJ, ECB are all going to print full blast due to Brexit.  Yellen will likely soon follow.  That is why bonds don't go down.  It is the magic carpet ride of free money that is at work again.   A liquidity driven low volatility rally.  SOS for 7 years.

1 comment:

Anonymous said...

TrendRambo: Makes perfect sense the scenario you described. The nomadic locust axle of Greenspan/Bernanke/Yellen are determined to preserve status quo. Time will tell if Trump and his allies has enough strength and wisdom to challenge puppet Hillary and her bosses and make an attempt to restore capitalism.