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Friday, October 4, 2013
Markets Are Taking A Hit — Stocks And Bonds Go Negative
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BOND MARKET LIQUIDATION: Bond Funds Hit With Biggest Outflows Ever This Week
BofAML Global Research, EPFR GlobalApparently this was the week where the rush for the exits in the bond market really hit a crescendo. In the week ended June 26, investors pulled a record $23.3 billion from bond funds. And it was a record across every type of fund: emerging markets, high yield, investment grade, and mortgage-backed securities funds all saw their largest weekly outflows ever.
Bond funds shrank by 0.9% this week, marking the second-largest weekly loss on record in terms of assets under management.
BofA Merrill Lynch Chief Investment Strategist Michael Hartnett calls it "bond market liquidation" in a note to clients.
Hartnett compares this week's outflows to the capitulation observed at the height of the financial crisis in October 2008.
After falling 2.1% over four weeks leading into the big outflow, Treasuries rallied 5.2% over the next six weeks.
The yield on the 10-year U.S. Treasury note hit a high of 2.64% on Monday, but the bonds have rallied this week, and the 10-year is now trading at 2.48%.
Below is a breakdown of this week's flows, via Hartnett:
Flows by Asset Class
Bonds: largest ever $23.3bn outflows! ($58bn over 4 weeks)
Equities: $13.1bn outflows ($6.4bn via ETF's and $6.7bn via LO funds)
Precious metals: $2.8bn outflows (20 straight weeks); MMF: $4.3bn inflows
Flows by Fixed Income Sector
Largest ever outflows from EM debt funds ($5.6bn or 2.3% of AUM); intensity of EM debt redemptions now only exceeded by 2008 melt-down (Chart 3)
Largest ever outflows from Munis ($4.5bn); Largest ever outflows from IG funds ($4.9bn);
Largest ever outflows from HY funds ($6.8bn); Largest ever outflows from MBS funds ($1.3bn);
53 straight weeks of inflows to leveraged loan funds ($1.1bn)
Flows by Equity Region
$5.8bn outflows from EM equity funds, just shy of "hard" buy signal; But 4w outflows of 2.7% AUM is huge and argues a "soft" buy signal has been triggered for EM, especially in conjunction with our Global Breadth Rule. Last "soft" buy signal triggered in Feb'13, after which EEM bounced 10% over nxt 6w
Interestingly, Brazil sees first inflows in 18 weeks ($0.4bn)
$3.9bn outflows from US equity funds; modest $0.4bn outflows from Europe; $0.5bn inflows to Japan (now 23 straight weeks)
Thursday, October 3, 2013
How to Play a Shaky Energy Sector in the Second Half
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Jeff Gundlach Hastily Threw Together This Presentation To Explain Why The Bond Markets Crumbled
DoubleLine FundsBond god Jeff Gundlach hosted a surprise webcast this afternoon titled: "What in the World is Going On?" Redux. "We arranged this hastily," he said.
The title is a play on his June 4 webcast, where he aimed to address the return of volatility as reflected by rising interest rates and the spectacular crash in the Japanese stock market.
However, since that call, rates only continued to surge, bringing down bonds all over the world.
Of note is the 10-year Treasury rate, which broke through the 2.5%, a level that Gundlach said would not be breached.
So what happened?
Gundlach explained that the financial markets got sucked into a liquidation cycle. It probably started with a couple of leveraged players taking risk off. This was followed by prices dropping and interest rates rising. Then more leveraged players got margin calls. More selling occured, people freaked out, and the cycle perpetuated.
But that perpetual selling may have ended.
"The liquidation cycle appears to have run its course," said Gundlach noting the recent rebound in various asset classes.
Gundlach, a Treasury bull, emphasized that in the universe of bonds, Treasuries have actually been a clear outperforming bond sector
He thinks anyone selling bond funds right now is making a mistake, as bonds are now offering more value. He reiterated his prediction that the 10-year would eventually head to 1.7%.
"Gold looks like death," he said noting that the yellow metal now appears to be a decent contrarian buy. However, he warned that it could go to $1,000 on momentum.
"Gold has a very good downside upside ratio," he added. He believes it could go down as much as 20% before going up 50% from current levels.
But if there were a contrarian idea that he liked more than gold, it's emerging market stocks. He noted that the ratio of the S&P 500 to the MSCI Emerging Markets has gone parabolic. He thinks this is bound to correct itself soon.
As usual, Gundlach offered a deck of charts that he used to frame his thesis.
Gold Just Fell Out Of Bed Again
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Horrific Retail Sales In Greece
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YARDENI: I Suspect Corporations May Not Be Buying Back As Many Shares As They Claim
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