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It's "total capitulation" in fixed income (AGG, BND), says BAML's Michael Hartnett. The "blood...

It's "total capitulation" in fixed income (AGG, BND), says BAML's Michael Hartnett. The "blood bath" includes the largest-ever three-week rush of bond-fund redemptions, $2.6B leaving (2nd largest outflow ever) the Emerging Markets Bond ETF (EMB), and mortgage-backed securities (MBB), municipal bonds (MUB), and TIPS (TIP) funds each now showing net outflows for 2013.
Comments (47)
  • You're kidding, right? After how many years of inflows?
    22 Jun 2013, 10:39 AM Reply Like
  • Sorry, the blood will still be running in the streets for a long time. Nice try though.


    Interest rates rise is far from over..
    22 Jun 2013, 10:46 AM Reply Like
  • We have yet to see an inverted yield curve. That will be when total capitulation occurs. But not for quite a while yet,probably several years at least.
    22 Jun 2013, 11:16 AM Reply Like
  • on Thursday it did that IEF was sold 1.5 times as hard as TLT
    22 Jun 2013, 11:41 AM Reply Like
  • Eying the TIPS: .59 10y yield.
    May pull the trigger at 1% and back up the truck at 2%.
    22 Jun 2013, 10:59 AM Reply Like
  • Turn out the lights, the party's over.............
    22 Jun 2013, 11:11 AM Reply Like
  • Agree with PalmDesertRat.
    22 Jun 2013, 11:45 AM Reply Like
  • Inverted yield curve implies very strong GDP growth....anyone calling for 6% nominal GDP growth over the next 3 to 5 years??
    22 Jun 2013, 12:05 PM Reply Like
  • "Inverted yield curve implies very strong GDP growth...."


    LOL. I needed that good laugh to start off the weekend!


    If you are in the top 10% that owns the other 90%, things have never been brighter....for everyone else there is reality:

    22 Jun 2013, 12:29 PM Reply Like
  • We will have strong growth when Obama leaves the white house and/or Obamacare is repealed, not before.


    I consider the massive redemptions contrarian, at least for the short-term. Fed is not done buying, and any economic weakness caused by this dislocation will keep them buying and send rates ... down.
    22 Jun 2013, 03:43 PM Reply Like
  • If inflation heats up as a result of all the stimulus in recent years, you could easily see nominal GDP growth of 6% with real growth of 1-2%. the Fed could be forced to become more restrictive to cool down inflation. tightening up could well cause an inverted curve.
    23 Jun 2013, 12:12 AM Reply Like
  • Inflation? Where? If, if, if, if. All those empty new cities in China with no one to live in them? All those new 3 percent down FHA loans to no-income-six-jobs borrowers lately? All those free-spending 47 million on food assistance? All those college graduates living at home instead of buying or renting their own, and with tons and tons of loans to pay off? All those happy employers paying higher and higher employment taxes, hiring more and more of those happy short term employees at minimum wage just long enough to fire at 12 months of benefit free employment just in time to duck out of obamacare mandates?
    23 Jun 2013, 03:51 AM Reply Like
  • Dont fall into the trap of thinking you need growth to fuel inflation. In the 1970s you had poor growth and recessions alongside high inflation. What happens is supply shortages driving up prices. And government spending often makes up for the slack in demand.,
    so slow GDP growth means we are producing less. And govt spending maintains demand at reasonable levels for many goods. So you get inflation.
    23 Jun 2013, 03:42 PM Reply Like
  • "Dont fall into the trap of thinking you need growth to fuel inflation. In the 1970s " ... we had 2 oil shocks.


    In 2012, the US increased oil production by the largest amount since before the 1970s, and we are seeing a 'negative oil shock' add to growth while capping inflation at the same time. Fracking oil and gas is one of the brightest spots in our economy, and given that we have HAD a 12 year bull run on commodities, and given China is still slowing down in growth, I'd predict tame commodity prices in the next 10 years, a contrast to the last 10 years.


    The US seems more stuck in the slow-growth, QE and low inflation while govt debts balloon situation that japan went through.
    problems, but inflation wasnt one of them.


    bottom line: Today is not the 1970s.
    23 Jun 2013, 04:54 PM Reply Like
  • correctamundo. it's called stagflation,and it's occurred previously in the US and many other countries. excessive money creation also is an important factor.
    23 Jun 2013, 05:02 PM Reply Like
  • The US will experience strong economic growth in the second half of this year. About 3%. Right now the US grew 2% during the first half of this year despite European recession and Chinese slowdown. That is an outstanding performance given the circumstances.
    23 Jun 2013, 05:43 PM Reply Like
  • bbro,
    A positive yield curve, which has existed for several years, implies growth. An inverted yield curve implies recession.


    The Complete Dividend Plan,
    I checked your links and the first one has quite a long list of alarming statistics about the poor state of the American citizenry, assuming they're correct, which I think they probably are. The second two mostly repeat items in the first. The third is grimly hilarious.


    America is slowly (or not) becoming a third world nation. There doesn't seem to be any way to reverse the slide in living standards as jobs are arbitraged to lower wage venues. The conservative plan is to complete the transformation by turning over social security funds to Wall Street, if not end it, convert Medicare to private insurance, if not end it, and generally to destroy the social safety net.


    The current spike in mortgage rates could easily be the result from the beginning of the end for the 51 bull market in bonds. Lord help the economy if it is.
    23 Jun 2013, 09:22 PM Reply Like
  • All:


    Here's a suggestion:


    Go back and calculate what a retiree today would have made if his SS contributions had instead been invested in an SPX index fund. Or, even without privatizing SS, contrast our SS to, say, Chile or Switzerland, where all such funds are sequestered and not subject to raid by ambitious politicians.


    SS has been a taxation scam in disguise almost from the day it was created.
    23 Jun 2013, 09:27 PM Reply Like
  • Or just assume you roll over 3 month t-bills,you'll still be better off. I recently looked at my Social Security contributions and expected benefit over the last 52 years,it made me cry.


    One problem,however,is that most people do not have the ability to invest over the long term. Look how many people were wiped out in the 2007/08 debacle.


    So if everyone can invest their own funds,most of them will lose them,then they'll come crying to Washington to bail them out. So the taxpayer will pay for it in the end.
    23 Jun 2013, 10:05 PM Reply Like
  • Michael Snyder....laughing as he takes the gloomsters the economic
    collapse bookstore,,,,#11 for Gifts for Women...a military jacket??
    22 Jun 2013, 12:42 PM Reply Like
  • "Michael T. Snyder (born October 9, 1989) is a fundamentalist Christian crank who has started numerous blogs as a testament to his raging insane belief that the world is about to end"


    A quote I found...
    22 Jun 2013, 12:50 PM Reply Like
  • The only thing that virtually assured is that somebody's wrong in this wholesale panic selling of all asset classes.


    Rates can only sustain a rise if demand increases, indicating a strengthening economy. In that event, the selling of most equities will have been in error. And, if the economy folds, for whatever reason, then, the rush to dump all classes of bonds will have proven to be overly hasty.
    22 Jun 2013, 12:51 PM Reply Like
  • Right on.
    Mr.Market's knee jerk reactions create opportunities. Issue is to identify the right one and the proper timing.
    I'm thinking TIPS in the coming months. Hopefully dumb money's going to crash them down to 2% yield on the 10y.
    22 Jun 2013, 01:07 PM Reply Like
  • Tack I love you but the NYSE is 5.5% from an all time high. That ain't exactly "panic selling of all asset classes."


    BTW are you still bullish on equities. I was a borderline perma bear who flipped to bullish in November 2011 after reading some of your stuff.
    22 Jun 2013, 03:52 PM Reply Like
  • RH:


    Sorry, but Wednesday afternoon and Thursday was nothing less than hysteria and panic. That's why every class sold off across the board and we saw 350 stripped off the Dow. You're absolutely right that we're only down 5.5%, so far, but that's a different issue.


    I remain bullish on equities, generally. The hysteria in various yield-related classes just adds some value opportunities. In particular, I see the sell-off in floating-rate and convertible bonds, as unwarranted, and think various BDC's have been oversold, too, as they will actually benefit from higher rates, There could be a few agency REITs that start to appear attractive, as well, especially those with higher proportions of adjustable-rate mortgages.


    All the hysteria over rates because of QE is misplaced. The real determinant of future market direction will arrive when Q2 reports unfold.
    22 Jun 2013, 04:20 PM Reply Like
  • RH:


    I should add, lest some misinterpretation be made, I always try to remain as invested as possible. I alter holdings to try to balance perceived risks. Previously, I had sold all fixed-rate bond funds and muni holdings and cut agency REITs to minor positions. My current overall portfolio balance is, presently, 50% equities, 32% preferreds and 18% debt. Cash is at about 12-15%.


    As some muni funds and agency REITs get oversold, I'll probably add some of those issues back into the mix. I wil up BDC holdings, as I don't believe the sell-off in this category is warranted.
    22 Jun 2013, 05:46 PM Reply Like
  • Tack...thoughts on HYD as of Friday's levels??
    23 Jun 2013, 09:11 AM Reply Like
  • bbro:


    Think HYD, and munis, oversold already, but may well get even worse. Generally, I like closed-end funds better because I can better track how the pricing relates to the actual value of the underlying securities, making oversold conditions even easier to detect. Some muni funds I follow are: BFZ, EOT, IQI, MHF, MHI, MUA, MUH, MZF, NMA, OIA, PMM.
    23 Jun 2013, 10:00 AM Reply Like
  • I agree with Tack, it was a week of hysterical selling. When the retail masses are unloading bonds en masse, it's time to go contrarian and buy. I like BDC's also....


    This economy is going NOWHERE fast and when investors realize this bond rates will ease lower again. Housing and auto sales are going to take a hit now that rates have moved up and that will cause the economy to sink again in the coming weeks and cause rates to tumble again just as they did last year from these levels.
    23 Jun 2013, 02:42 PM Reply Like
  • staying in treasuries because of sell off not in spite of it. media pounding table "buy, buy, buy" but never spoke of taper until well after policy had been made. if you bought Apple debt you were crushed. wall street up to it's usual tricks and I'm tacking away. higher interest rates due to a surprise Fed tightening is a buy signal? I'll wait until after October now. the amount of margin debt is onviously staggering that has been used to bid these bubbles to amazing heights. the Fed will not change it's new "take away the punch bowl" position...and yes they will continue their asset purchases as well. with those interest rates now restoring risk to the system lengthening the term structure of the debt is more important now than ever.
    23 Jun 2013, 02:57 PM Reply Like
  • Meredith Whitney was right!
    22 Jun 2013, 03:33 PM Reply Like
  • DVL:


    I assume you're making a joke.


    Meredith didn't know her butt from first base (still doesn't), but she did provide a fabulous buying opportunity for muni investors when she scared the market dopey back in 2011.
    23 Jun 2013, 10:05 AM Reply Like
  • Epic major worldwide collapse is just around the corner...
    23 Jun 2013, 08:51 AM Reply Like
  • Jawohl, Herr Obersturmbahnführer! as they say in ÖstPreußen...
    23 Jun 2013, 09:28 AM Reply Like
  • If you're right,then QE4 is also around the corner.
    23 Jun 2013, 09:41 AM Reply Like
  • If you're wrong, then QE4 is right around the corner.
    23 Jun 2013, 03:02 PM Reply Like
  • "worldwide collapse is just around the corner..."


    We haven't had enough austerity yet. In order to get enough for world collapse we have to get bigger budget cuts, more people thrown out of work and significantly less trade. Part of the world is OK with this but the U.S. is not playing fair. Our austerity is too halfassed and there's a real danger U.S. growth will drag the rest of the world up past the point of collapse.
    23 Jun 2013, 03:22 PM Reply Like
  • "World will end at noon... see our complete coverage on tonight's newcast"
    23 Jun 2013, 04:56 PM Reply Like
  • Nobody is certain how much of the growth in this recovery is due to stimulus. A lot of it - $360B since Sept. - isn't being loaned out. It's just sitting there in reserves, so it doesn't create any additional economic activity. But commercial and industrial loans have been on the rise for the last two years. And the ratio of consumer debt to personal income, presently at 20.6%, a pre-recession high. This tells me that there are an increasing number of people borrowing though. Bernanke has said we can have mildly increasing inflation while rates remain low. I believe him.
    23 Jun 2013, 03:39 PM Reply Like
  • Slow GDP growth ( we produce less), government deficit spending to make up for the decline in wage growth = Inflation.
    Loss of credibility in central banks., currency turmoil and a sense that the Fed cannot prevent bond yields from rising = yields gfo much higher.
    Then you get into a vicious cycle of falling Dollar, higher bond yields and further loss of confidence in the Fed.
    23 Jun 2013, 03:45 PM Reply Like
  • The economic orthodoxy would have us believe that growth and inflation go together - that there is a tradeoff - higher growth or lower inflation.
    This is just not borne out by actual history. generally strong real growth and low inflation go together. ( 1990s). And slow growth/recessions and inflation go together ( 1970s).
    In large democracies like the US, stagflation is the default state - barring some major new innovation ( new technology, demographics etc).
    Inflation is already raging in Asia. Central bankers are going to find out soon that it is not that easy to stop inflation once it starts.
    23 Jun 2013, 03:51 PM Reply Like
  • Folks may poin to the 1930s as a refutation of my argument. i would say, that the monetary situation now is nothing like the 1930s. All the major central banks operate pure fiat currencies and have become comfortable with the total lack of constraint. And they have figured out that if they all act in unison then they can maintain exchange rates at fairly stable levels. So, that kind of asset deflation leading to goods deflation wont happen. After all we never got any sustained decline in the CPI index after the asset deflation of 2008.
    23 Jun 2013, 04:01 PM Reply Like
  • RS, I agree with you. A lot of these central bankers do not have much experience and they don't have that much history with their own economies to refer to. But inflation, it's a disease. Many examples exist for that going way back. People forget. I sure haven't forgotten the wage and price freezes in the 70's.
    23 Jun 2013, 04:16 PM Reply Like
  • tradewin- Thanks! i also well remember the psychology in 1999 about tech stocks - i was regularly laughed at for expressing concerns that it was a huge bubble. i also remember the psychology in 2008 - housing prices had never before declined and cannot decline!
    So, now everybody is convinced that inflation is dead forever. derisive laughter is common if you so much as bring up the subject. "Inflation? Where is it? hehehehe".
    Ive seem this kind of arrogance before - we all have!
    23 Jun 2013, 04:25 PM Reply Like
  • Yes, we can have inflation with low rates. The FOMC sets rates for the year at their meetings. They also attempt to set the rate of inflation which they can't entirely control. Rates have been manipulated for the last few years. The Fed's rules. They can bend them, break them or change them. It's their game.
    23 Jun 2013, 04:53 PM Reply Like
  • Good grief Folks said auction rate securities would never fail either, and then one day, no one showed up. The bond sellers were plenty credit worthy, it is just no one wanted (or had the liquidity) to buy the paper.


    The world does not have to come to an end for bonds to revert to historic means.
    23 Jun 2013, 07:02 PM Reply Like
  • Bond prices are still too high. Need to fall another 20-30% then I'll start watching for an entrance.
    24 Jun 2013, 12:52 AM Reply Like
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