4 Reasons Not To Buy Bonds Now by Jared Dillian
I try to be a long-term thinker and filter out all the short-term noise. That’s hard nowadays, because there is so much short-term noise!
Any one of these four things would be big news, especially in the dog days of summer. But all four? It’s crazy out there.
Warren Buffett’s 2018 Activist Investment
I can’t stay focused. I can’t resist the temptation to dive into the short-term stuff. So here we go. Put your boots on.
4 Reasons Not To Buy Bonds Now
Canada’s housing bubble
Vancouver housing prices are up 32 freaking percent from last July, but sales are down 19%.
I’ve written about Canada’s housing bubble (a lot). I continue to think it is one of the best macro opportunities globally over the next 10 years.
This is the classic sign of a top—prices keep going up on lower and lower volume. It’s a textbook, parabolic, blow-off move. I don’t think US housing prices ever moved that violently 10 years ago.
There are also early indications that the 15% tax for foreign homebuyers that’s being applied in British Columbia is starting to work. Sales agreements are being cancelled, and deals are falling apart.
They will probably reprice at lower levels. You never know, but this could be the one thing at the margin that causes all of Canadian housing to collapse.
Fed has lost its street cred
William Dudley, New York Fed president, said that the Fed could hike in September. Said it was a possibility. But it really isn’t, because it is right before the election.
So why would he say something that is, like, totally false?
The Fed likes to jawbone markets—if Dudley sounds hawkish, then financial conditions might tighten on their own, without the Fed really having to do anything. But the problem is that the Fed has jerked markets around so much over the years that nobody really pays attention anymore.
Think about it: when the head of the New York Fed starts talking in concrete, specific terms about rate hikes, and the market completely ignores him—that is a problem.
The Fed now has serious credibility issues. This means that monetary policy is no longer as effective as it once was.
Unless… the Fed actually takes action and hikes rates.
Now, I have said all along that they will hike rates (for sure) after the election, and they definitely will if the winner is Trump. And I still believe that.
Regardless of what Brainard says, Yellen is in charge, and she has expressed a desire to “normalize” rates. Get the political uncertainty out of the way, and that might happen.
Walmart is buying Jet.com
Jet.com basically takes $20 bills and sells them for $10. That is their business model. I am not kidding. Whoever runs Jet.com has created one of the world’s best and most outrageous loss-making entities. And it just got bought by Walmart for $3 billion!
This is all wrong. First of all, it shows desperation by Walmart. Of course they can’t let Bezos run away with it, they need a real online presence. But have they just demonstrated that they were unable to hire even a handful of smart people to build a website? That they had to buy the ridiculous Jet.com?
Second of all, can you think of the perverse incentives behind rewarding the executives of an utterly intractable business such as Jet.com with $3 billion?
I don’t mean to be glib, but it doesn’t take a lot of talent to build a money-losing business. Maybe I should be more charitable—it is downright impossible to compete with Amazon, after all, but Jet didn’t even come close.
And I thought Yo was nuts.
Trump is blowing himself up
Don’t want to dive too deep into politics here—I already poked the tiger. But if the goal for Team Trump is to win, they’re not doing a very good job, falling far behind Hillary Clinton in national polls.
I saw the other day that two Whitmans—Meg and Christie Todd, prominent women Republicans—are outright endorsing Hillary. In fact, the whole phenomenon of “Clinton Republicans” is becoming a thing (like the Reagan Democrats 30 years ago).
Unlike Nate Silver and Scott Adams, I am not going to make any predictions. (I am much better at predicting markets than politics; Scott Walker was my early pick for the Republican nominee.)
But I will reiterate my earlier position that either nominee will be fully engaged in a huge fiscal stimulus in 2017. Trump just said he would spend $500 billion on bridges to nowhere. Clinton will one-up him, for sure. Look out, bond market.
I would rather do a swan dive into the Sarlacc Pit than buy a bond in this environment.
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