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I Hear A Freight Train Coming, It Is Time To Get Off Of The Tracks


  • I warned of a market top in this asset class one year ago.
  • Those that listened avoided a big, big sell-off.
  • If you did not listen the first time, here is your second chance.

The regime of the last nine years in which central banks cut rates to nothing and pumped incredible sums of money into the financial system is coming to an end, writes Ray Dalio.

"Central bankers have clearly and understandably told us that henceforth those flows from their punch bowls will be tapered rather than increased."

Next up is the late-cycle phase in which central banks tighten policy "until they don't get it right and we have our next downturn."

Bond rout just getting started - Gundlach

The 10-year Treasury yield is at 2.38% today vs. about 2.12% just a few sessions ago. It's certainly a sizable move for such a short time frame, but it's barely a blip on a longer-term chart.

Jeff Gundlach tells Bloomberg he expects a move toward 3% this year. Taking to Twitter as well, Gundlach reminds the German 10-year Bund yield - near zero not that long ago - has spiked above 0.50% as the ECB begins to move to take the punch bowl away in Europe.

One year ago, I wrote about the growing bubble in REITs, Utilities, and other interest rate sensitive stocks and sectors. At the time, bond yields in Japan, Germany, and Switzerland were going negative, while our interest rates were hitting new, all-time lows.

Since that time, Utilities have gone nowhere, bonds are about even to slightly down, while REIT's like Realty Income (O) are down anywhere from 5-20%. Meanwhile during that same period of time, the S&P 500 is up over 15%.

REIT's, Utilities, and other interest rate sensitive instruments look just as bad today, if not worse than they did back then. When I wrote my article last year, our FED had just begin to hike rates, they have turned much more hawkish since then.

In addition to

This article was written by

Bill Gunderson profile picture

Bill Gunderson is CEO and Chief Market Strategist at Gunderson Capital. He is a professional money manager, former research analyst, author, and media personality with over 24 years of experience.

He runs the investing group Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (23)

17 Jul. 2017
I think I need to listen to John Boggle, Buy and hold, Buy and hold.
277-Income profile picture
Bill, your thoughts on EDF, an emerging markets bond fund? I realize, yes its Bonds, and you are clear about your opinion about bonds right now but do you have a different thought on this particular bond animal..thanks.
Just wonder what will happen to stock market when Trump resigns ?????

What a mess !!!
If the 10 year treasury yield goes to 3.5%. How does that make my 9% yielding apartment REIT a bad investment. I scratch my head. I know in this market, the machines will move everything down together. So I guess logic does not matter.
So, should we look at "shorting" bonds while interest rates creep up? And what is the best way to approach that type of investment?
Nathan Kemalyan profile picture
" Earnings for the S&P 500 have been growing every year since 2009, but at some point in the future they will begin to recede. I do not see that event on the near time horizon as of now, but it will happen at some point in time.

It will then be time to look for other asset classes to invest in. Who knows, maybe cash, gold or even inverse ETFs will be the place to be at the time. All we can do is take it one day at a time."

I read all the doomsday prophesy, looking for the safe port in the storm. This is what was offered..."who knows".

There was nothing but nothing that saved investors in 2008-2009. A few doomsday theorists were in cash; I call that more luck than skill. I wonder if they had the prescience to jump back March 2009? What saved me was sitting on my hands. by 2011 I was ahead of where I was in 2007.
I'm going to hang on to the couple of bond funds I purchased well over 10 years ago. I've watched how they move up and down. I assume they could tank again, but with the DRIP, my share count goes up and up, and I don't intend to sell shares. I may be a bit overweight in REITs. However, I have held real estate through boom and bust. The way one makes money in real estate is to manage liquidity risk. Have enough margin of safety that you aren't forced into a fire sale when the market is soft.

I think I'll hang on to those REITs as well. My cost basis in all of them is WAY low and, yes, I still get my dividends. I think the author said it all when he said "I am a market timer". Have fun with that game. I'm playing to different rules.
JW5000 profile picture
Correct. Owning bonds funds is what leads to these market timing suggestions. If you own individual bonds, as long as they are not in default, just sit tight and collect your coupons. 2008-2010 was a great time to be buying quality long-term bonds with high coupons. Right now, there is a shortage of attractive bonds so stay short until the rates are attractive again, then grab the long-term bonds.
berloe profile picture
So I sold my yielders last Summer; lost a years interest and gained what?

And what do I do now
I am in the same dilemma, B....As a retiree investor, with only a modest SSA and IRA distribution cash flow, I must seek yield, but stocks are dangerous and bonds slowly bleed money.
Bill do you think HYG and JNK will go down a lot too. I hold 5 yr junk bonds individually in a series of ladders in different accounts, with the intention to be made whole at maturity and in the mean time am clipping 6-7% in coupon interest. My 8 yr CAGR net has been on the order of 7-8% including the hiccup caused by E&P, M and E industry. I think I sacrificed growth for the peace of mind low volatility give me now that I am 6.5 yrs into retirement at age 58. I still like to follow your work though since your trading techniques are aggressive but sound. Did you ever follow Collins back in the 90s with his OTC insight news letter. His RS approach to growth mo-mo was similar to your approach and likely would target similar assets, but he was not as nimble and did not run an infomercial radio show. thanks !
It's hard for narcissists to know if they are one or not.
I Love Hamburgers and Coke profile picture
I just retried in March. I'm fortunate to not need to access my retirement accounts at this time and normally I wouldn't mess with my retirement investments but I came to the conclusion last week that with the FED policy turning and possibly accelerating, I don't see anything that looks good in the foreseeable future. Sitting on 100% cash as of the end of today. Maybe Ill miss out on some future gains but I'm going to sleep well at night until we get a correction that's investable.
Cambridge STR profile picture
Sleeping well at night is very, very much worth it. I'm not retired, but during my last job search I went to 100% cash (with a few exemptions) and sleep much better. Plus, history shows 30% or more drops in the market indexes occur with each recession. I'm patient enough to wait to re-enter the market during the next crash in prices.
next recession around the corner will make new all time lows in bond yields
11 Jul. 2017
actually no! economy is okay, very little risk to a recession.
fussyGroup profile picture
oddly, I did overhear someone saying her retirement investment advisers pitched REIT names last week. Good timing for the points in this article and the comments
Cambridge STR profile picture
I like Pimco short term bond funds in this environment. Am I crazy?
Me, too, WW.....I am going short duration for most of my income, although the rewards are rather disappointing....
10 Jul. 2017
And a little Bob Dylan thrown in for good measure !
HonestJohn profile picture
That was my first thought...Keep a clean nose, watch the plain clothes......
Look to the genius in the Market place ; can't see anything except gurunegativeness. Have the guru's cacooned from their state of gurupositiveness too the cockroaches firesale feeding frenzy-?

A guru in hand is worth a cockroaches in the bush.
MANFAC-Could NOT agree more with your reply!
Couldn't agree more - thank you for the article!
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