The 10 year Treasury is at 1.47%. The 30 year Treasury bond is at an all time low yield of 1.92%. Just deal with it. Get over it. There ain’t no yield in sight, and none is likely to show up anytime soon. The Fixed-Income markets have been flummoxed by the world’s central banks and they nations that they represent.
“Our Lady of Blessed Acceleration, don’t fail me now.”
– Elwood, the Blues Brothers
If you ever considered the question of who was more important, the governments or the investors, people and corporations, you now have the answer. The query has been solved with a definitive loud and clear response. Governments win. You lose. Now the only thing to do is figure out what to do about it. We have been snookered. The bells are chiming.
The problem is that many are going to make the wrong decisions. They are going to radically increase their “risk profiles” in an effort to find some yield. Then they are going to pay the price for their decisions. I am warning you off of this road. I am waving the red flag of danger. I am telling you that this is NOT where you want to go.
Coronavirus is also infecting the bond markets. Worries about a Chinese and Asian economic slowdown spilling over into the U.S., have also lifted traders’ expectations for interest rate cuts later in the year. This virus not only has medical impacts but market impacts as the Chinese economy is in real trouble, in my opinion, and as a serious hit to global supply chains is in the offing, in my estimation.
“We are now expecting the coronavirus to have a longer impact on global growth,” said Dick Hodges, a portfolio manager at Nomura Asset Management. “The U.S. is one of the few places that has room to cut rates, and I think they will cut at least twice this year.”
The worldwide outbreak has raised concerns of a deepening hit to consumer spending and worsening industrial output and consumer consumption. The outlook has darkened for multinationals and it encompasses industries from airlines to shipping and smartphones to fashion. At first blush you may think of airlines, cruise ships, resorts, hotels and other companies tied to the travel industry. I think it is going to go much further afield. That is my viewpoint.
This, I point out, could take yields down to places that have never been seen in recent memory. Fixed-Income investors are being taken out to the wood shack and the beatings could begin in earnest. Last year the equity markets provided solace and relief. I would not be counting on them for any kind of repeat performance, as the Dow Jones Industrial Average dropped 227 points last Friday. It is a rare event when equities perform like last year for two years in a row. A very rare event.
“Most companies globally have little capacity to protect themselves other than to shelve growth plans,” said Giovanni di Lieto, lecturer in international business from Australia’s Monash University. “No replacement for China is in sight,” he said.
Chinese banks have been ordered to disinfect cash before issuing it to the public in an effort to curb the spread of the new coronavirus. The Chinese government said during a press conference last week that banks would only be permitted to release new bills which had been sterilized.
Banks across the country had been told to withdraw potentially infected cash from circulation and disinfect it using either ultraviolet or heat treatments, the government’s State Council stated. Decontaminated cash would then be stored for seven to 14 days before it could be returned to the market. Money removed from high-risk sites such as hospitals and markets would be sealed and specially treated, but it would then be held by the People’s Bank of China (PBOC) instead of re-entering circulation, officials said. Cash transfers between China’s provinces had also been suspended, which the State Council claimed had minimized the movement of personnel and reduced the risk of transmitting the new strain of coronavirus during transit.
I point out that if money can be a transmitter of this disease that boxes, shipping materials, wrapping paper, and other containers, or even specific products themselves might also be a transmitter of the virus. No one knows, for sure, but then caution is always advised when serious issues are in question.
So, starved for yield and cash flows, I continue to point at Closed-End Funds as one place to attain both. They are complicated and their analysis is tricky, but you can be weaned off a starvation diet in this little appreciated sector of the markets. If you get some appreciation, fine, but this is not an appreciation play but a yield and cash flow play, as some of the funds pay monthly dividends.
You can also examine some REITs and some MLPs, but I continue to think that those owned in Closed-End Funds are better opportunities because of the diversity of assets. Don’t be shy here. If you need some help, get some help. This is a very difficult time to be an investor.
Midway upon the journey of our life, I found myself within a forest dark, for the straightforward pathway had been lost.
– Dante Alighieri, The Divine Comedy
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.