Safety seeking momentum traders have clearly fled long-term government bonds and piled into the riskier bond alternatives of consumer staples and utilities. The dividend yields are now SO low, even as long-term bond yields have sharply risen. In my opinion, it will someday end in tears. Think consumer staples [Hostess Brands] can't ever go bankrupt? That there isn't intense competition within the sector? Think utilities [California's Pacific Gas and Electric Company] can't ever go bankrupt? Good luck on those theories.
In order to invest in either stock market sector now I'd need to be compensated for the extra risk. As a recent investor in both sectors, just not seeing the future rewards any longer. At all. In the last few months, it's been like a wild train ride to crazy town. Want absolutely no part of it. The bargains are gone and all that's left is empty momentum driven euphoria. Just an opinion, of course. Can't speak of your opinion on the level of this insanity. Perhaps, unlike me, you feel that relative parabolic moves higher are now the new normal? All I can say is heaven help us all if you are right.
Bonus thought: These charts certainly do not scream soft landing. They’re definitely screaming something though, much like passengers on the Titanic most likely were. Clinging to flotsam in icy water is hardly a suitable alternative to an actual lifeboat.
ReplyDeleteThe fourth horseman is always ready to ride.
ReplyDeleteWhen it comes to consumer staples, definitely always!
ReplyDeletehttps://www.thestar.com/opinion/editorial_cartoon/2020/03/11/theo-moudakis-four-horsemen.html
Hebrews read right to left; that's the first horseman. You have to expect Pestilence to want to stock up on toilet paper, given how many illnesses come with diarrhea as a symptom.
ReplyDeleteI own one utility stock, con ed. Bought at 71.82. It closed down 1.73% today at 96.49. I've collected a years worth of divvys. Worked out OK. Still plan to hold all div stocks until they do the unforgivable and reduce the divvy.
ReplyDeleteDon't know how it will work out in the long run, but still staying the course. 1000 points of light and all.
Yep. I noticed the utilities. I try to scale into companies that have good dividend growth as they fall. The downside of this is that sometimes the companies rally after I’ve only just established a small position (especially now that I am a better judge of value). I took the opportunity over the past few weeks to sell my small-sized utility stock positions Since the position sizes were small and held long-term, it didn’t really hurt my tax situation to take the gains. And they were clearly overvalued.
ReplyDeleteOn the other hand I have two really large utility positions that I’ve had for 35+ years. They were on dividend reinvestment all that time until a couple years ago and the capital gains are huge. We’re talking somewhere around 20+ baggers. They are my largest positions by far. I can’t sell because “taxes”. Guess I’ll ride them down collecting the dividend all the way.
I shake my head now wishing that the 24-year old me that bought those utility stocks had only bought more of them and put them in an IRA. I could have easily done so.
One thing I’ve come to realize belatedly is that wise commitments of any type payoff over the long-term.
I recall a time when I held an investment due to “taxes” much longer than I wished. It all worked out in the end though. As the investment fell, the extra taxes went away.
ReplyDeleteTold myself I’d never do that again.
Of course, it is easier for me to preach inside my retirement account than outside of it. Taxes are a moot point. Can buy and sell as much as I like without triggering any extra taxes. Outside of my retirement account, I hold a long-term TIPS that I could sell for a nice profit. Two things stop me.
1. I’d have to move it from Treasury Direct to a brokerage account. Too lazy apparently.
2. Taxes. So much for telling myself I’d never do that again, lol. That said, holding until maturity is certainly not all that risky anyway and is my preferred course of action. That too may partially reflect my inherent laziness though.
Lazy isn’t the worst trait when investing, as it is often accompanied by patience. Patience has helped me far more than laziness has hurt me. And contentment isn’t so bad either. Nor is just being thankful and grateful for what I have. A hot shower, food, a roof, and free time are much more than many have in this world. No great wants for more than that.
Walked 5 miles today listening to the audiobook “Dr. No” checked out for free from the local library. Life is good. Feeling very fortunate.
I don’t worry about taxes when dealing with a speculative investment for the same reason. I just sell and pay the taxes since the paper gain can disappear quickly.
ReplyDeleteWhen I’ve got a good dividend (and especially a dividend growth) stock on reinvestment in a taxable account, I just let it ride. I’ve found that’s the best approach because it’s got to fall enough to offset the tax burden that I incur by selling AND I’ve got to have the discipline to follow it/buy it back if it does fall enough. That’s too much work and chances are it’ll just dip a bit after I sell, and then go on to new highs.
It's called the "autopilot me to victory" strategy, and it can work in a time of stability.
ReplyDeleteHold on. What’s that “in a time of stability” disclaimer doing there? This is America, the most stable economic power in the known universe, or so I’m told. Other than the twin deficits, polarized politics, a pandemic, supply shortages, wars, surging national homelessness, rising violent crime rates even with incredibly low unemployment, and our recent history of popping epic economic bubbles, what could possibly cause this lack of faith in our stability? I’m shocked. Shocked I tell you!
ReplyDeleteJust because there's going to be a political transition from Boomers to Millennials doesn't mean there will be an effect on stability.
ReplyDeleteHey, where's that shaking coming from???