The Bond Market Conundrum the Experts Worry About

I don’t make it out to the West Coast very often, but I do have friends who live and work in Los Angeles.

One of my colleagues makes it a habit of going to the various investment conferences held each year in "La La Land," and this year is no exception.

On Monday, my friend attended the Milken Institute Global Conference, held at the swanky Beverly Hilton hotel.

My friend heard from, and rubbed elbows with, a slew of top money managers and prominent market commentators. After the event, he called me to share some of his thoughts.

One of the voices that most impressed him was Allianz’s Mohamed El-Erian.

El-Erian has long been considered a star in the investment business, and he’s made a lot of great economic calls over the years.

At this year’s conference, the Allianz chief economic adviser told an audience what’s got him worried. And that is the seeming contradiction between the stock market and the bond market.

Does that mean we should start to worry, too?

Image Credit: Wikipedia

According to El-Erian, while stock prices are trading near all-time highs, bond yields have failed to confirm that strength. (In other words, they are way too low.)

Here’s how Business Insider reported what El-Erian said at the Milken Conference:

"The optimism is off the charts according to the stock market but the geopolitics are a real concern," he added. "So I think part of the puzzle is how can we have all these contradictions together and how does optimism prevail over these other signals?"

The contradiction is that bond yields should be moving higher in a "reflationary" environment where asset prices also are rising.

But they’re not.

The S&P 500 is up 6.8% year-to-date, while the Treasury Note Index is down 6.1%

At some point, bonds will be right … or stocks will be right.

History says that bonds usually win the fight, as they are much more a barometer of the economy and the prevailing sentiment in stocks.

For now, however, that market sentiment continues to be skewed by what I call "the hope factor."

This hope factor is one of the most-compelling tailwinds we’ve seen for equities in a long time. And, of course, it’s been in effect since the day after the Trump presidential victory.

And though March and April brought about a stall of sorts in the "the hope factor," recent tax policy proposals have added renewed wind to the hope factor sails.

So, which camp will win … stocks or bonds?

I can’t say for sure. But betting against stocks since Nov. 9 has been a losing proposition … to say the least.

***

Stocks may be all but stampeding higher, but there are bargains to be found. And as Sean Brodrick explains today, you simply have to look to Canada to find them.

Take it away, Sean …


Mining for Money

Better Late Than Never
By Sean Brodrick

Macquarie Research just came up with a great idea — weeks after I came up with the same thing. Better late than never, I suppose.

Their idea: To buy Canadian gold miners. Why? Because the Canadian dollar, or "Loonie," has fallen to a 14-month low. So that lowers costs for Canadian miners.

And it makes them screaming bargains, to boot.

Permalink

You can see the Loonie was already trending lower. It just broke price support. Will it next fall to the bottom of the price channel — or even lower?

Subscribers who watched my presentation saw me offer reasons why I think Canadian miners are great bargains here. And a cheaper currency is one of them.

Interestingly, Macquarie offered a list of five stock picks to play this trend. And two of them are on a short list of recommendations I am giving my subscribers to my Red-Hot Resource Millionaire subscribers this week!

Another pick of mine is a Canadian stock mining silver in Mexico. The peso had a good couple of months recently. But it is still trading 11% below where it was when Donald Trump was elected president.

You know what that means: Mas gangas! (More bargains!)

So yeah, Canadian miners are on sale. Canada’s economy is resource heavy. So we’ll probably see the loonie head higher the next time gold and oil blast off.

I think that next blast-off could be around the corner.

We plan to ride that move in Red-Hot Resource Millionaire. And we are targeting huge gains.

There will still be time to make gains down the road. Better late than never, right? But for those who are in early, the profit potential could be truly extraordinary.

All the best,
Sean


***

Which camp do you think will win the day: stocks or bonds? I want to know what you think, so if you have a comment or question about today’s Afternoon Edition topic, or any of the topics we cover, just leave a comment on our website or send us an e-mail.

***

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily