Seeking Alpha

Chasing White Rabbits

|
Includes: BIL, BNDX, BWX, DFVL, DFVS, DLBS, DTUL, DTUS, DTYL, DTYS, EDV, EGF, FIBR, GBIL, GIM, GOVT, GSY, HYDD, IEF, IEI, IGOV, PLW, PST, RINF, RISE, SCHO, SCHR, SHV, SHY, TAPR, TBF, TBT, TBX, TLH, TLT, TMF, TMV, TTT, TUZ, TYBS, TYD, TYNS, TYO, UBT, UDN, USDU, UST, UUP, VGIT, VGLT, VGSH, VUSTX, ZROZ
by: Mark J. Grant
Mark J. Grant
Chief Strategist, bonds, special situations, portfolio strategy
Summary

One focus in 2020 is going to be on the central banks.

Will the ECB, the Bank of Japan, the People's Bank of China, and then the Fed, continue to ramp up their balance sheets and buy more sovereign and corporate debt?

The answer will determine bond yields and the equity market's performance more than any other single factor.

"And if you go chasing rabbits, and you know you're going to fall

Tell 'em a hookah-smoking caterpillar has given you the call…"

- Jefferson Airplane

One of the most important bankruptcy attorneys in the United States lives in Fort Lauderdale. I am proud that he is a friend of mine and I am proud of his accomplishments. His name is Charles M. Tatelbaum. He is a Director at the highly respected law firm of Tripp Scott. Last Friday he sent me the following piece which I am publishing, with his permission.

Job Cuts from Bankruptcies Hit Highest Level Since 2005

Data by global outplacement firm Challenger, Gray & Christmas Inc. found that the number of job cuts announced in 2019 due to companies filing for bankruptcy protection hit the highest level in more than a decade, the Wall Street Journal reported. More than 62,100 job losses have been announced by U.S.-based employers in the past 12 months due to bankruptcy, according to the report. That number is higher than the annual totals for bankruptcy-related job cuts any year since 2005, when 74,200 were announced. Bankruptcy was one of the leading causes of job cuts, along with restructuring, trade difficulties and tariffs, in the past year, Challenger found. Employers said they were going to slash more than 592,500 jobs for various reasons, with the retail industry leading the way with nearly 77,500 cuts. About 10.5 percent of all job cuts announced through year-end 2019 were attributed to bankruptcies. In December alone, there were more than 5,500 job cuts due to bankruptcy, Challenger's data show. There were more job cuts related to bankruptcy in 2019 than during the recession years. More than 62,100 jobs were affected due to bankruptcy in 2008, while about 50,900 were cut in 2009.

What particularly struck me about Chuck's piece is that it is in direct disagreement with the general notion that high unemployment is on the wane and that it is nothing to be concerned about at this point in time. This article should give us all pause as we assess the markets' environment. Consequently, I bring it to your attention today.

Tradeweb released some interesting data last week. Europe's pool of negative-yielding government bonds declined in December to its smallest size since May. Eurozone government bonds indicated that the negative yielding sovereign debt fell to 4.14 trillion euros in December. This is about 52% of the total eight trillion-euro sovereign debt market. The latest figures are down from 57% in November.

In September, the negative-yielding government bonds surged to the highest level ever, at 5.63 trillion euros, or about 70% of all sovereign debt in Europe, which were in the red. As for the global pool of negative-yielding bonds, it peaked at around $17 trillion last year and has been estimated by Tradeweb to be around $12 trillion today.

The cause for all of the never before seen in human history negative yields, are the major central banks of the world. They have printed "Pixie Dust" money from nothing but computerized air and then bought debt with it so that the governments that they represent can borrow at nothing, or less than nothing, and so that their taxpayers do not have to pay for their budgets or social programs. It is a great trick, bordering on magic, when an administration no longer has to pay anything to run the government.

"Disbelief in magic can force a poor soul into believing in government and business."

- Tom Robbins

One focus then in 2020 is going to be on the central banks. Will the European Central Bank, the Bank of Japan, the People's Bank of China, and then the Fed, continue to ramp up their balance sheets and buy more sovereign and corporate debt? The unfolding answer will determine bond yields, and the equity market's performance, more than any other single factor, in my opinion.

There is nothing, and I mean nothing, more important than what the central banks are going to do as they are the major driver of all of the markets, these days. Like it or lump it, you can't fight the people that make the money. You cannot win that game and your investment decisions should be set accordingly.

"I think we would need to see a really significant move up in inflation that's persistent before we even consider raising rates to address inflation concerns."

- Chairman of the Fed, Jerome Powell

So, there you have it. Right from the mouth of the man himself. React accordingly!

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.