Our Random Thoughts for October

“October was always the least dependable of months … full of ghosts and shadows.” – Joy Fielding

The leaves are changing, cold weather is rolling in and there is no shortage of interesting things to observe in October. At Noble Wealth Partners, we are observing the provocative developments in the world of finance. Below, you will see some of our findings…..

Is passing investing a bubble?

Michael Burry seems to think so. Yes, the same Michael Burry that predicted the housing crash and one of the main characters in the Big Short.

Passive investments such as index funds and exchange-traded funds are inflating stock and bond prices in a similar way that collateralized debt obligations did for subprime mortgages more than 10 years ago, Burry told Bloomberg News in an email. When the massive inflows into passive vehicles reverse, “it will be ugly.” Michael Burry

“Like most bubbles, the longer it goes on, the worse the crash will be,” Michael Burry.

See the full article here. https://www.cnbc.com/2019/09/04/the-big-shorts-michael-burry-says-he-has-found-the-next-market-bubble.html


Is October really a month we should be afraid of in the stock market?

The chart below shows that daily swings in the stock market tend to be exacerbated during the month of August. Take this with a grain of salt as these results are skewed by the crash in 1987 and 2008.

October Price Swings.png

Who would hold negative yielding debt?

Neg Debt.png

Many clients ask us why anyone would buy a negative yielding bond. In other words, would you pay someone for having the privilege of loaning them money? A strange concept that could only emanate from a world with central bank intervention. To answer the question, individual investors (like you and me) do not buy these bonds. These bonds are bought by other central banks to influence exchange rates or by pension funds and insurance companies to match their liabilities. The pension funds and insurance companies have to pay out claims in the distant future. These negative yielding bonds provide one of the most efficient hedges to these liabilities. For these companies, it is not about what asset will perform the best. They are only concerned with the asset that helps minimize the risk of their balance sheet. When we run financial plans at Noble Wealth Partners, we use a similar exercise to mitigate the risk of our clients running out of money in retirement. Please reach out to us if you are curious how we use this technique to benefit our clients.

Are you satisfied with your wage?

If you are under 35, you may have more of a constructive view on the subject. Finally, this demographic is feeling more upbeat about their earnings than those over the age of 55.

Source: The Conference Board, WSJ.

Source: The Conference Board, WSJ.


What does the recent data suggest?

Last week, we received data from the ISM showing manufacturing export orders are as low as they have been since the Great Recession. Furthermore, the ISM Non-Manufacturing report came in 50.4 and was the lowest reading since 2014. A number below 50 indicates contraction. Services make up about two thirds of our economy so this is worth watching. Add this data to waning earnings, an inverted yield curve, trade conflicts, and geopolitical problems and you have a steep hill to climb to get out of this mess.

ISM Exports.png
ISM non.png

And what about the trade war?

A survey from Bank of America shows less than 30% of investment managers think the trade war will be resolved before the 2020 election and almost 40% of managers believe there will not be a trade resolution. Period.

BOFA Survey.png

It’s no surprise to me to see this new assessment of the prospect of trade resolutions by market pundits. I’ve been telling my clients not to expect a resolution anytime soon. Below, is an email I sent to a client back in May. At that time, many market participants had priced in a resolution and were expecting the trade war to be resolved by the end of the summer.

Trade conflict EM.png

But what does the general public think?

Well, at this time their outlook is not so rosy. Another Bank of America survey shows the highest number of respondents saying a recession is likely, going all the way back to 2009. The Economist presents a survey indicating a shrinking percentage of Americans thinking the economy is getting better while a larger percentage believes things are getting worse.

BOFA Recession.png

That’s all for this month. Check back next month for more information about the stock market, financial planning, and wealth management strategies for the new year.