Periods of market stress and uncertainty are more frequent than investors remember. In the last century there have been over 100 days when the stock market has moved over 4%. Fear and irrationality are part of every market and in today’s immediate gratification age, markets can enter bear territory in a few hours. At Warcap our job is to determine if those events deserve a bid or an ask. But while the Dow gets the headlines, it is just one of many factors in to consider.
All assets are priced relative to the value of others. Simply looking at stocks, real estate or commodities in a vacuum is futile. All assets price relative to the interest rates on bonds. Today the yield on ten-year sovereign debt are:
France -0.32% Germany -0.64%
Japan -0.14% United States 0.89%
That’s right, in most developed economies the interest on government bonds is negative. That means an investor that buys a negative yield bond pays a premium to generate a loss. Never in the history of America has the ten-year treasury hit 0.89%. In addition, two trillion of corporate debt is trading with negative yields. The option to invest money with a certain loss over 10 years is a poor one in my opinion. Yet, that is occurring in mass and we are paying attention. That is the product of fear that all markets experience at times and we at Warcap don’t succumb to that investment emotion. Rather, we use the markets to tell us where to invest and facts to establish timing.
The Institute of Supply Management shows that service sector activity hit 57.3, the highest level in a year. ADP payroll reported 183,000 sector jobs were created last month, 13,000 more than expected. Air pollution statistics in China, where the Covid-19 originated, are increasing indicating renewed activity. As for Covid-19, to date there have been 3,286 deaths.
In comparison, at least 14,000 people have died from the flu in 2020. In short, I remind investors to check the facts and not just the headlines.
We hear what investors want loud and clear. Everyone is looking for a high yield on an investment that can’t go down in value. Today it doesn’t exist! Our approach is to balance what investors want against the reality of the current investment options. Locking investors into long-term negative yields IS NOT something we will do at Warcap. What we will do is examine the markets and the facts to guide our investors down the optimal path as we’ve done since our genesis in 2005.