What we’re reading (9/28)
“Why Microsoft Has Lower Borrowing Costs Than The U.S.” (Wall Street Journal). “Among U.S. corporate bonds rated AAA, two in the main index currently trade a little below the equivalent yield on Treasurys, known as a negative spread. This is extremely unusual, both because companies are in principle much more likely to default than the government that can tax them, and because the corporate bonds are harder to trade, so should yield a little more to compensate buyers for the difficulty in selling them quickly.”
“A Golden Opportunity To Upgrade A 60/40?” (Alpha Architect). “If you like your 60/40 but hate the drawdowns, consider adding a modest gold futures overlay on top. According to Corey/Rod’s research, a hypothetical portfolio can improve excess returns and lower drawdowns. Why? Well, gold’s long-run correlations to U.S. stocks and 10-year Treasuries are basically zero (0.01 and 0.07), and layering this asset into your 60/40 mix has made a lot of sense. Of course, if using leverage isn’t your thing, you could always pull some exposure out of your stocks and bonds and allocate it to gold (Google or ChatGPT, ‘permanent portfolio,’ for some ideas in this direction.). You might hurt your expected returns, but you may improve your risk-adjusted portfolio along the way.”
“Bond Traders Say Rally Hinges On Jobs Data At Risk From Shutdown” (Bloomberg). “The jobs report is what ‘you need to drive a rally from here — it’s the most crucial part of the weak-economy, dovish-Fed story,’ said James Athey, a portfolio manager at Marlborough Investment Management Ltd.”
“Recession Probability Declining” (Torsten Sløk, Apollo). “The consensus probability of a recession over the next 12 months continues to decline and currently stands at 30%.”
“‘The New Normal’: Wall Street Says High Stock Valuations May Be Here To Stay” (Yahoo! Finance). “‘Over the past 20 years, the S&P 500 is trading at roughly a 40% premium to its long-term average on forward estimates,’ he [Sam Stovall, chief investment strategist at CFRA Research] said. ‘But on a five-year basis, when mega-cap tech began to dominate market cap and earnings growth, that premium shrinks to a high single-digit range.’”
