Ed’s Daily Notes for July 1st   Leave a comment

Bloomberg: Who Goes to Cash Shows Extent Bonds Will Become Bear Market

Even if you aren’t a bond investor, this is important, because it could impact the economy (if you pay interest on anything, it could impact you), as well as the equity markets:

Investors who poured $1.26 trillion into bond funds in the past six years pulled out record amounts of cash last month, leaving the world’s biggest fixed-income managers struggling to stem the flow.

The funds saw $61.7 billion of withdrawals as money market mutual fund assets rose $8.17 billion in the week ended June 25, according to TrimTabs Investment Research and the Money Fund Report.

Bank of America Merrill Lynch’s Global Broad Market Index dropped 2.9 percent in the past two months, the most since the inception of the daily gauge in 1996, as Federal Reserve Chairman Ben S. Bernanke laid out possibilities for reducing the $85 billion in monthly bond purchases supporting the economy.

Market bears say losses are just getting started because yields barely exceed inflation, leaving little relative value in bonds as the global economy improves. Pacific Investment Management Co., BlackRock Inc. and DoubleLine Capital LP, which together oversee about $6 trillion in assets, said the worst is already over because the securities are fairly valued.

“We are at a definite inflection point,” Richard Schlanger, who helps invest $20 billion in fixed-income securities as a vice president at Pioneer Investments in Boston, said in a telephone interview on June 28. “If this thing continues in this vein, people are going to throw in the towel and you’re going to get this pain trade. And the markets can’t take it. They’d rather see a gradual rise in short-term rates versus a precipitous rise.”

On the other hand:

The bond market may receive support from financial institutions, which will need to buy as much as $5.7 trillion in safe assets including government bonds by 2020 to comply with the 2010 Dodd-Frank Act in the U.S. and capital standards set by the Bank for International Settlements in Basel, Switzerland, the Treasury Borrowing Advisory Committee said in a May 1 report.

There are two ways to look at this. While the bond market will recover, and do just fine in the long-term, I am not so sure about the economy. As long as banks are stuffing their vaults with bonds, they won’t be lending as much. I won’t go so far as to make any economic predictions on this, other than to say that all the calls for recovery are premature. This is another economic headwind, on top of increasing taxes.

Fox News: Google is developing an Android game console

Google is developing a videogame console and wristwatch powered by its Android operating system, according to people familiar with the matter, as the Internet company seeks to spread the software beyond smartphones and tablets.

With the game machine and digital watch, Google is hoping to combat similar devices that Apple may release in the future, according to the people.

Google is also preparing to release a second version of an Android-powered media-streaming device, called Nexus Q, that was unveiled last year but not sold to the public, these people said.

The Internet giant hopes to design and market the devices itself and release at least one of them this fall, they added.

While it is nice to see that my Google has some other plans, it is hard for me to be excited about this. I will wait and see.

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Posted July 1, 2013 by edmcgon in Bonds, Economy, Federal Reserve, Market Analysis, News

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