Comment of the Day
Video commentary for May 10th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: dollar steady, bonds ease slightly, equities pause, oil and gas weak, gold testing support, discussion of a potential bull case for bonds.
Email of the day on the 60/40 portfolio:
For some time, the best-looking charts have been the yield charts, almost everywhere but particularly in Europe. They are a pure example of consistency.
Questions: with the trillions of dollars invested in these securities how are the losses going to be reconciled? My personal belief was that rates could not go to where they seem headed because of the losses it would imply. Is there a lower rate case? How does this logic chain play out? The "prisoners" that own these bonds, who are they and how many of them are there? Is the 60/40 cookie cutter approach to managing portfolios getting crushed? Is income the new oil?
Sorry for the multiple questions but intellectually the global losses in bonds has to be discussed in my opinion.
My view - Thank you for these topical questions. I agree being short bonds (long yields) has been the most consistent breakout of any market anywhere this year. As a result there is no doubt bond portfolios have been under extraordinary stress. Reconciling losses in fixed income will mean pension contributions will have to rise, payouts will fall, recipients will need to work longer and/or assets prices will need to recover.
Email of the day on the Dollar and commodities
A very well-respected cotton trader in Texas told me many years ago, that amongst all the factors influencing the price of cotton, the value of the dollar is by far number one. I guess this also is true for the price of gold to some extent. I was presently surprised to see how well gold has held inspite of the dollar’s strength. Am I missing something? I would be grateful if you would share your views on gold in the current environment. As always thanks for your very valuable service.
My view - Thank you for your kind words and this topical question which may be of interest to the Collective. The Dollar usually trends higher when there is a wide interest rate differential with other currencies supporting it. That makes borrowing money for speculation more expensive, such liquidity out of the global economy, and reduces demand for raw commodities. That tends to weigh on commodity prices.
Email of the day on Rolls Royce and selling investments
Eoin, given how markets have deteriorated of late, could I be so cheeky as to ask why you have not cashed in on Rolls Royce yet? It looked like a great but when it near tripled to 140p, but it’s nearly halved now and you’ve sat tight. Surely there must have been a key technical level between then and now to warn you to sever ties with this one. I ask because I too sit on similar scenarios and I keep asking myself why I don’t cash in a while ago while the going was still good, making it more difficult to let go now, despite prices still sliding, seemingly day by day.
My view - Thank you for this question which may be of interest to the Collective. The broad aerospace and airlines sector has been deeply affected by the pandemic lockdowns and is taking longer to recover than I expected. Nevertheless, I remain confident it will recover.
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Eoin's personal portfolio: bond long closed at a loss, investment positions sold and stock market short increased. May 5th