1873-CC Trade Dollar PCGS MS64

Seeing Double “C”s on a Rare “Trade”

The Trade dollar represented the first substantial silver dollar mintage at the Carson City Mint since its opening in 1870. The 1873-CC, struck to the extent of 124,500 coins, eclipsed the mintages of all four Seated dollars from this mint combined by more than 100,000 pieces. Nevertheless, this was the second-lowest production total from Carson City for the Trade dollar series, trailing only the 1878-CC (97,000 coins). This coin is considerably more lustrous, as well as more colorful in hand. Tied with seven others at this grade level with just a single example graded higher.

Offered at $41,400 delivered

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Jeffrey Gundlach: The US stock market ‘will get crushed’ in the next recession

Courtesy of Yahoo Finance, by Julia La Roche Reporter

Influential bond investor Jeffrey Gundlach, the CEO of $150 billion DoubleLine Capital, sees a scenario where U.S. stocks get crushed in the next recession — and likely won’t recover for quite some time to come.

Even with Wall Street benchmarks just days removed from new record highs, the bearish investor declared that “the pattern of the United States outperforming the rest the world has already come to an end.”

In an exclusive interview with Yahoo Finance, Gundlach noted that 2019 was one of the “easiest” years ever for investors in “just about anything… Just throw a dart, and you’re up 15-20%, not just the United States, but global stocks as well.”

For several reasons, Gundlach warned that pattern isn’t likely to last forever. He added that investors should consider a pattern he highlights in his “chart of the year,” which divides the world into four regions — the United States, Japan, Europe, and Emerging Markets — and looks at the major stock market indices.

And what that shows is a pattern where the Nikkei 225 (^N225), the Euro Stoxx 50 Index, and the MSCI Emerging Markets index all peaked before a recession — but never recovered to pre-recession levels. The same fate might befall the S&P 500 Index (^GSPC) in the U.S., according to Gundlach.

DoubleLine Capital CEO Jeffrey Gundlach says this is the “chart of the year.”

“So, where are we today? Today, we have the S&P 500 is killing everybody else over the last ten years, almost 100% outperformance versus most other stock markets,” he explained to Yahoo Finance.

“My belief is that pattern will repeat itself,” said Gundlach, who has spent much of 2019 warning of a downturn ahead of the 2020 elections.

“In other words, when the next recession comes, the United States will get crushed, and it will not make it back to the highs that we’ve seen, that we’re floating around right now, probably for the rest of my career, is what I think is going to happen,” he added — suggesting that a recovery won’t be seen for years.

While the 60-year old bond king expects a rotation into non-U.S. stocks, he also believes that the U.S. dollar, which has been “remarkably stable” in 2019, will eventually weaken as investors start to worry about the massive federal debt spending.

“I think in the next recession the dollar will fall because of the deficit problem United States, and that investors will be better served to own foreign stock markets instead of the U.S. stock market in dealing with the next recession,” Gundlach added.

Fed Adds Another $100 Billion In Liquidity In One Day – Financial Crisis Looms

New York Fed Adds Another $97.9 Billion In Liquidity Yesterday – Concerns Grow of Year-End Financial Crisis

40% Of Fed’s Balance Sheet Reduction Wiped Out In Just 2 Months


◆ The New York Fed added $97.9 billion in temporary liquidity to the financial system yesterday.

◆ The Federal Reserve Bank of New York continues to pump massive liquidity amid very heavy demand by banks for year-end funding; the $97.9 billion involved overnight repurchase agreements, or repos, worth $72.9 billion and the balance via 42-day repos.

 The repo market shook the financial world in September when an unexpected rate spike choked short-term lending, spurring the Federal Reserve to intervene.

 Interventions ensure markets have enough liquidity and short-term borrowing rates do not spike violently and create a liquidity crisis on Wall Street and the global financial system.

 The New York Fed has now pumped nearly $3 trillion into unnamed trading houses on Wall Street in just over two months to ease a liquidity crisis that has yet to be credibly explained.

 Massive currency injections signal there are significant problems in the plumbing of the interbank lending market and wider financial system

Game Over?

Authored by Sven Henrich via NorthmanTrader.com,

What happens if you toss $97.9B in liquidity at an extended market and it sells off anyways? Maybe nothing, but maybe everything.

The unholy alliance surely has succeeded in elevating asset prices in recent weeks, indeed prices have exceeded the level I suggested as a potential key target in April in Combustion, 3102 on $ES:

Today $ES hit 3157 or 1.7% above that level I outlined then.

Back then I discussed an apex of trend lines possibly converging in October 2019. October came and went and the Fed went full repo and QE and markets kept ascending relentlessly. Until today.

And guess what. Despite all the rallying $ES still hasn’t managed to recapture its broken 2009 trend line. It still hasn’t overcome its 2007 trend line. And it still hasn’t overcome its broken 2019 trend.

No Sir. What this rally has done to run relentlessly toward a trifecta apex of trend lines. When? This morning. In pre-market:

Got within 20-25 handles of that apex peak point and on a negative monthly divergence again.

Now there’s nothing that says we can’t get above it with all this liquidity, but I note $ES got near the apex and suddenly rejected even with $97.9B in liquidity thrown at it.

This convergence of trend lines ends this month. It may simply mean nothing by the end of the month or it may mean everything. It’s simply too early to tell. If it means everything then it may be game over for this bull run.

If it’s a meaningful level then even a basic .236 fib level retrace risks a move ultimately toward 2584. A proper technical move toward the .382 fib would target 2,218. Again, way too early to tell, I’m just outlining the potential technical ramifications.

So December will be critical to get a better sense of the validity of this chart.

Perhaps of note the rejection today came at key trend line resistance points in the form of throw overs. The throw overs occurred last week during the shortened low volume holiday week.

The broad all market ETF $VTI:

The rejection today then leaves its megaphone structure technically still intact.

Note $SPX hit its highest RSI readings in 2019 on the recent rally hence it became very much overbought. As long as this channel remains intact the game can continue and there are plenty support levels below on a proper technical retrace, think the 50MA, thing the July highs, think the lower trend line. All of these could offer support for coming rallies.

All we can say for certain now is that $ES reached a massively important confluence area and so has the larger market.

Tops are only known in hindsight and we are far from confirming anything here, but at least we know where we are relatively to several key trends. And for today at least all of these trends have asserted themselves in form of resistance and if they prove meaningful it may be game over for this liquidity soaked  bull run.

Fed’s Second 42-Day Repo Oversubscribed As Rising Repo Rate Confirms Year End Liquidity Rush

ZeroHedge by Tyler DurdenMon, 12/02/2019 – 08:33

One week after the Fed’s first 42-day term repo which for the first time allowed dealers to lock in funding into the new year and which was 2x oversubscribed, confirming a growing scramble for year-end funding, traders were keenly looking ahead to the result from today’s second 42-day repo which matured on January 13. And, as we noted last week, year-end liquidity fears remain front and center as the $25 billion operation proved to be roughly 40% below the required size to satisfy all liquidity demands.

Dealers submitted $42.550BN in bids for the 42-day op ($29.750BN in Treasurys, $1BN in Agency, $11.8BN in MBS paper), resulting in an oversubscription of the $25BN in available repo.

This was modestly below the $49.050 billion submitted in the first 42-day repo operation conducted on November 25:

It remains a key question for funding markets why, even with QE4 in place and now daily overnight and short-term repo operations in place, banks continue to rush to lock in year-end liquidity, where some fear a similar explosion in overnight repo rates as was observed on Dec 31, 2018 when General Collateral soared amid a widespread liquidity shortage. Indeed, as Bloomberg put it, “even with the Fed’s commitment to continue providing liquidity to the financial system around year-end, the market is still showing concerns. This is due to banks’ year-end balance-sheet constraints related to capital surcharges and other regulatory requirements.”

The clearest indication that despite the massive liquidity injections that have taken place since mid-September liquidity remains scarce was today’s initial print in the overnight General Collateral rate, which rose from 1.60% to 1.68%, the highest since the Fed cut rates on Oct 31.

So what is it about quarter and year-end that is forcing banks to shore up their balance sheets with liquidity? As a reminder, while most US bank have a GSIB surcharge of around 2%-3%, JPMorgan remains an outlier – and is perceived as the “riskiest” bank – with its 4.0% surcharge. It’s also the reason why the bank has been quietly pulling liquidity away from funding markets ahead of quarter-end periods.

For those curious how the Fed calculates the GSIB surcharge, Bank of America provided the following handy schematic:

Two weeks ago, when commenting on why it expects to see sharp year-end liquidity pressures, BofA said that funding markets are currently very stable but the bank sees risks of repo pressure into year-end, as the Fed faces two funding issues into Y/E:

  1. a low level of reserves requiring ongoing large Fed repo injections
  2. dealer repo intermediation constraints stemming from the GSIB surcharge.

The way these issues are linked is through the Fed’s short-term repos; Fed repos pressure dealer balance sheets larger while GSIB constraints encourage dealers to shrink the overall size of their market making activities.

Separately, and in keeping with the recent tradition, the Fed also completed an overnight repo operation, which however showed less funding demand, as “only” $72.9 billion in securities were pledged in exchange for overnight liquidity with the Fed, well below the limit of $120 billion. Yet another troubling observation: while many have expected the total notional on overnight repos to decline over time, the daily use of the overnight repo has stabilized in the $60-$80 billion range and has failed to decline over the past month.

Federal Reserve Proposes New Rule To Let Inflation Run “Hot” Ahead Of Next Recession

Courtesy of Zero Hedge by Tyler DurdenMon, 12/02/2019 – 10:05

As the Federal Reserve remains unable to stoke inflation (because it refuses to measure it correctly) and refuses to factor in asset price inflation…

… it has now considered launching a new rule that would let inflation run above its 2% target to make up for lost inflation, reported the Financial Times.

Though the Fed’s policies are to protect big Wall Street banks and keep liquidity ample in the financial system, its policies have overwhelmingly created deflation through supporting zombie companies and blowing financial bubbles.

So to “make up” for lost inflation, the Fed will temporarily increase the target range above 2%, also known as “symmetric” overinflation. The policy would “make it clear that it’s acceptable that to average 2 percent, you can’t have only observations that are below 2 percent,” according to Eric Rosengren, president of the Federal Reserve Bank of Boston, who recently spoke with FT.

Fed members have expressed concerns that reverting the federal funds rate to the zero lower bound will drive inflation expectations lower, a real risk of Japanification, something Albert Edwards is especially concerned about.

Officials have also lamented that the since the fed funds rate is so low compared to history, any recession could make monetary policy ineffective, though there is always the reality that the Fed will merely unleash negative interest rates during the next recession.

Meanwhile, Fed members have been experimenting with new monetary tools ahead of the next downturn. Janet Yellen said the new rule could be like “forward guidance,” which enabled the Fed to pressure short-term interest rates lower. This eventually allowed longer-term rates to fall as well.

Rosengren said, “future committees might not be as comfortable with that formulaic approach. This is why I prefer something that is a little bit more flexible, maybe not as constraining, but makes it a little clearer that we should be having [some inflation readings] over 2 percent.”

Fed governor Lael Brainard, spoke with reporters last week, said the new rule is to complex to elaborate on with the public. She said if inflation drops, the Fed should allow inflation to run hot, perhaps in a range of 2 to 2.5%.

In plain English, the Fed is afraid that its its own policies are Japanifying the US economy and in response is willing to… drumroll… double down which will somehow push inflation run above target, when in reality it will simply unleash even more deflation!

The strategy clearly shows the Fed is making up policy as it goes ahead of the next recession, where monetary policy will be less effective than ever before. The silver lining: risk prices will be at all time high as the world careens toward the next global recession.

1916 Standing Liberty Quarter NGC MS65FH

Sweet 16

From a remarkably low 20th century mintage of 52,000 pieces, the 1916 Standing Liberty quarter is an acknowledged key to the series. First-year type collectors have no other option to choose from, as no quarters were struck at the branch mints in 1916. The Type One design as modified the following year to cover Liberty’s torso with a coat of chain mail, another important consideration for type purposes. Thus, the 1916 is prized by collectors of several different collecting disciplines and examples are always in high demand.  The one offered here is lightly toned on the reverse and features satiny surfaces. It is also brighter in hand than seen in our images.

Offered at $28,175 delivered

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Morgan Stanley Ousts FX Traders as It Probes Concealed Loss

By Stefania Spezzati, Donal Griffin, and Viren VaghelaNovember 28, 2019, 10:36 AM CST Updated on November 29, 2019, 2:35 AM CST

Morgan Stanley fired or placed on leave at least four traders over an alleged mismarking of securities that concealed losses of between $100 million and $140 million, according to people with knowledge of the matter.

The firm is investigating the suspected mismarking, which was linked to emerging-market currencies, said the people, who asked not to be identified as the details are private. Tom Walton, a spokesman for the New York-based bank, declined to comment.

The traders who have been identified as part of the probe include Scott Eisner and Rodrigo Jolig, both based in London, and two senior New York-based colleagues, Thiago Melzer and Mitchell Nadel, the people said. Eisner, Jolig, Melzer and Nadel didn’t respond to requests for comment. Their ultimate employment status isn’t yet clear, but at least some of them are leaving the bank, the people said.

Melzer was given responsibility for foreign exchange and emerging-markets Americas trading in March, while Nadel runs macro trading in the Americas, including rates and currencies. Eisner was managing orders for the Central and Eastern Europe, Middle East and Africa currency book, known as CEEMEA, according to his LinkedIn profile.

In so-called mismarking, the value placed on securities doesn’t reflect their actual worth. The scope of the probe at Morgan Stanley includes currency options that give buyers the right to trade at a set price in the future, enabling them to both speculate and hedge against potential losses. Dealing in foreign-exchange options surged 16% to $294 billion per day in April, according to the most recent data from the Bank for International Settlements.

Morgan Stanley’s currency options desk has struggled this year amid a slump in the volatility that generates profits for traders, even in the more unruly emerging markets, according to a person with knowledge of the performance. The JPMorgan Global FX volatility index trades at the lowest since the summer of 2014.

Third Quarter

The Wall Street firm booked some of the losses in the third quarter, one of the people said. Morgan Stanley reported a 21% increase in overall fixed-income trading revenue, a result that was “partially offset by a decline in foreign exchange,” according to its third-quarter earnings presentation.

The probe shows “the amount of effort still needed in these large organizations to reduce episodes of misconduct,” said Angela Gallo, a finance lecturer at Cass Business School. “The frequency of misconduct cases in the U.S. and Europe in recent years speaks very loudly that more fundamental changes are required.”

It has been a turbulent week for securities firms in London and New York after Citigroup Inc. was fined 44 million pounds ($57 million) by the Bank of England for years of inaccurate reporting to regulators about the lender’s capital and liquidity levels. The incidents point to weak internal controls at investment banks a decade on since the financial crisis.

Natixis SA, the French lender roiled by risk-management problems since last year, has suspended a senior trader at a subsidiary in New York pending an internal investigation, Bloomberg News reported this week.

Officials at the French bank are reviewing issues around how some of the senior trader’s transactions have been recorded, the people said. The bank is also examining how he managed his portfolio of trades, they said, requesting anonymity as the details aren’t public.

— With assistance by Silla Brush(Updates with additional details in final paragraph.)

CIO Of $175Bn Fund Warns “A Liquidity Crisis Is All But Inevitable”

Authored by Christoph Gisiger via TheMarket.ch,

Tad Rivelle, Chief Investment Officer of the Californian bond house TCW, doubts that the Central Banks can prevent the impending economic downturn. He spots increasing signs of stress in the credit sector and recommends holding safe assets to be prepared for turmoil in the financial markets.

Mr. Rivelle, who rarely gives interviews, views the prospects on the financial markets with skepticism. In his opinion, it’s clear that the business cycle is in its final stages. He warns that the power of unconventional monetary policy is largely exhausted and nervousness in the credit sector is growing.

Against this background, he advises a defensive calibration of the portfolio and a careful approach when it comes to security selection – especially in the investment grade segment where many companies are more leveraged than their rating indicates.

Mr. Rivelle, the rally in stocks has lost some of its momentum recently. Nevertheless, the S&P 500 is near its all-time high. What’s your take on the current market environment?

We’re very skeptical of taking risks in this market since there is fairly abundant evidence that we’re in a late cycle type of environment. Equity valuations are largely following the script of the central banks: The central banks say dance, and the equity market is dancing. In contrast, debt investors increasingly say: «There is nothing in it for me to get on the dance floor because as a debt investor, all I get back is a 100 cents on the dollar». We’re the asset class that’s always at risk of loss. The Federal Reserve can say and do whatever it wants. But if it can’t get the private sector to follow through with cheap financing and debt markets become skeptical of providing favorable financing, I don’t know where you go with that.

Globally, there’s around $ 12 trillion in negative yielding debt. How do you approach such a market as a veteran fixed income investor?

It’s an absurdity and an artificial condition. For instance, a Swiss company like Nestlé finds itself in some kind of financial paradox: They can issue negative yielding debt in Swiss francs and then use the proceeds to buy back their own equity. If you want to reflect on this philosophically: Why have any equity at all? You could just buy it all back. That leads to the next observation: Your assets theoretically are producing benefits and your liabilities are producing benefits, too. This would imply there’s no cost running your business at all. This is obviously a hint that markets didn’t get to negative interest rates through a negotiation process between borrowers and lenders. Rates were pushed off the cliff by the central banks.

What are the consequences of these artificially low interest rates?

The collective and extraordinary expansion of central bank balance sheets has powered the «bull market in everything». But these absurd policies aren’t going to work for the long term. In this cycle, the Zeitgeist has been that the central banks have the capacity to maintain growth and prosperity. In others words: If you control the financing right to corporations and consumers, you can make the economy grow forever. This flies in the face of common sense. Economics used to always be about the idea that you need to incentivize producers to make efficient choices. If you give them the right incentives, they will raise the bar in terms of value addition and growth over time. But when you artificially chose your rates, you are doing the opposite. You’re causing bad choices by definition.

Where are such bad choices evident today?

The low rate environment has created excesses in a lot of areas. It has driven up asset prices, and as you drive up enterprise multiples, you drive up leverage multiples. Look at private equity: The best idea that most institutional investors say is in their portfolio is private equity. That’s strange since the whole concept of private equity is basically that you buy up businesses, you put a lot of leverage underneath them, you don’t mark things to market – at least not the same way as the public markets do – and you create this illusion of low volatility investments. So you have a system where company managers get enabled to say ridiculous things to their investors like: «We don’t care about profits». I don’t think we would have a company like WeWork if we didn’t have an environment where investors are thinking that they need to invest in a fairy tale because they can’t earn a return any other way.

What’s your take the WeWork disaster?

WeWork was one of these situations hiding in plain sight. There were plenty of people who expressed skepticism. Yet, you had money center banks playing along, making loans and adding to the credibility of it. So you had a fairy tale: You had a $47 billion unicorn two or three months ago that now had to be rescued. I’ll go further: If SoftBank didn’t rescue WeWork, would you really want to find out what the lawsuits are going to discover when the Limited Partners sue SoftBank? When they ask: «How did we get to $47 billion, exactly?» And while you’re at it, you might be even doing that in a court in Riyadh. So maybe this point, the best course of action is just to pay everybody off and then figure out what to do.

Where are other disasters hiding in plain sight?

When you get to the last phase of the cycle, you need to be thinking about what could go wrong, because there is very little probably that’s going to go right. Today, a lot of carnage has come to the fracking area. There are a lot of E&P capital structures that are evidently no longer financeable in the capital market. A lot of these businesses are probably going into bankruptcy. Also, you see stress in automotives, in semiconductors and in retail. What’s more, it’s fair to say that the bank loan market represents one of the significant risks out there.

What are red flags investors should watch out for?

The number of high yield credits trading at spreads over a thousand basis points over treasuries has been rising all year long. Also, you’re seeing a lot more volatility in the leveraged lending space. Credit Investors increasingly are firing first, and ask questions later. This speaks back to another of the excesses in this cycle. Traditionally, the deal was that if you are a leveraged company, you were given two choices in the debt markets: Door number one, you can show the world what your financials are, adhere to the public standards, issue high yield bonds and report to the SEC and your debt investors what’s going on. Door number two: If you don’t want to show your numbers you had to get your hands tied behind your back. The lenders will give you the money but they won’t let you do much of anything with it because they want to make sure you’re not doing something stupid while they can’t watch you.

And what’s going on in this cycle?

This cycle, we have moved to an environment where what was a covenant heavy bank loan market has become a covenant light bank loan market. As a debt investor, you don’t have transparency and you have no ability to constructively restrict what management is doing. Private equity plays into this dynamic because it has used its market power to negotiate on behalf of its portfolio companies. So we’ve seen a worsening of covenants and credit agreements. Some of this relates back to a basic dynamic that the Fed and other central banks have put their hand on the scale: They’re basically communicating that they want to make it so easy for borrowers that lenders are saying: «Cash is burning a hole in my pocket. I need to do something with it.»

How does this end?

This is how it all ends badly. Think about the DNA of markets. Let’s say, you want to buy a house. In a red-hot market, you show up at the first day and there’s twenty people looking to buy. You want to do your due diligence and ask about the foundation, the roof and maybe the crazy neighbor. Finally, you get hold of the seller and he’s like: «I don’t have time. I’m not answering your questions. The only thing I want to hear from you is how much over the full offer price you want to pay.» That’s the way the credit markets were in 2017. «Drive-by» deals were done and investors like ourselves got the call in the morning saying: «Company XYZ is raising $ 500 million, you’re in or you’re out?» So no time for due diligence.

That doesn’t sound like prudent behavior.

Now, fast forward a couple of years and suppose you’re in a stone-cold housing market. You list your house, you wait three weeks and finally, some barely qualified buyer walks through the door and wants to know about your foundation, your roof and the crazy neighbor. After you’re done answering his questions, he’s got more and more questions because he recognizes intuitively that every time you can’t answer a question, he can make a worse case assumption and use it as justification to knock your price down. So suddenly the market has become completely illiquid and very hostile.

At which stage are we in the credit markets today?

Generally, if you’re involved in a bank loan that doesn’t have the parameters a CLO would naturally buy, the sponsorship is thin. If everything is fine, you probably won’t experience a lot of volatility. But miss your earnings or communicate some bad news and investors drop challenged credits like «hot potatoes.» That’s logical because your business has been operating in the dark. You haven’t told your lenders anything for years. Now, the only news you’re giving them is bad news. So they have to assume that this bad news hasn’t just happened yesterday, but there are deeper ongoing issues. They want out, but there is no bid on the other side. That’s why a liquidity crisis is all but inevitable.

How long until these developments evolve into a bigger issue for the financial markets?

We thought it was going to happen two years ago. Credit markets look late cycle, manufacturing looks pretty late cycle and corporate profitability, as well. So the proliferation of negative rates may also suggest that central bank policy has reached exhaustion. It’s almost like negative rates are the last thing central bankers are trying to make it work.

What are the chances of a recession against this backdrop?

It’s a little hubristic to say we’re going to have a recession in the next twelve months. What’s not hubristic is to say that these policies are not working and we will inevitably have a recession. Didn’t we try this at least once or twice before? Didn’t the Soviet Union have zero percent interest rates? Didn’t they have recessions? Maybe it wasn’t visible in the official statistics, but their recessions were manifested by longer lines at food stores.

What have zero percent or negative interest rates to do with that?

Artificial asset prices distort resource allocation and growth. Look at the fact that Sears and Kmart are for all intents and purposes just about to disappear on the scrap yard of history. All the resources invested in stores, labor and capital, are worthless. So the faster you get rid of it, presumably the better off you’re ultimately going to be. Recessions are not optional, they are inevitable. It’s the process in which it’s all getting washed out and rearranged. It’s like: «Don’t you want to get to the passing lane eventually? Or do you want to be stuck in the right line because you’re afraid of change?» Eventually you have to do it anyway.

An important piece of the puzzle is the US consumer. How healthy are households in the United States financially?

The US consumer is divided: You have the middle- and upper-class consumer, which seems to be in fine shape at the moment. You wouldn’t expect differently because consumer proclivity to buy is a function of income, employment and housing prices. So middle class people in general feel more secure with employment as high as today and their house worth 20% more versus what it was ten years ago. On the other hand, the subprime consumer is more credit dependent and metrics there are not really good. We’re seeing deterioration in delinquency rates and charge-offs for the lower range of credit counterparties. The problem is, that this is where a lot of growth ultimately comes from, from the marginal buyer.

What does it mean in terms of Fed policy? Are more rate cuts coming down the road?

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Let me be maximally charitably to the Fed: They have no backing by elected officials from either party to do anything but lower rates in response to incremental economic weakness. So it’s fair to say that if the economy weakens they will lower rates more, regardless of what they say. It won’t happen this year, I presume. But I guess in 2020 they’re going to cut rates again. We invented central banks because we figured out that the banking system, if left to its own faith, is too volatile and that we need a state sponsored institution to cushion the blow. But somehow, we went from there to the Fed buying $ 60 billion of T-Bills a month, calling it not Quantitative Easing, and central banks in Europe and Japan imposing negative rates.

What’s the yield on the ten-year treasury going to be in a year from now?

I would say somewhere around where it is today, between 1.5 and 2%. But that’s just a wild guess. It’s a question of timing and causation: If this becomes a global led downturn you have to assume that US rates are going lower. But you can also imagine other scenarios. US rates being above overseas rates has brought huge capital inflows and people are getting very used to the idea that these capital inflows will always hold down US rates. But what’s going to happen when these flows reverse for who knows what reasons and US rates go up?

What should a prudent investor do under these circumstances?

You should adapt your underwriting standards to the kind of environment that you are in. So, beginning a couple of years ago, we adopted our underwriting standards to be much more careful with respect to the types of risks we’re taking throughout our whole portfolio. In other words: Stay vigilant, focus on staying liquid, focus on safe assets and wait for volatility to present opportunity.

So how does a robust bond portfolio look?

It was Benjamin Graham pointing out that bond selection is a negative art. That’s especially true in the late cycle. Cycles die in large measure because capital gets tied up in unprofitable enterprises. So you need to think long and hard about what claims are breakable and can suffer catastrophic and permanent price declines. There may be a time to own breakable assets, but after they break and not before.

What are such breakable assets today?

There will be plenty of breakable assets and a lot of them will be in the high yield and bank loan market. Some maybe even in the investment grade market. Today, 11% of investment grade issuers are levered more than five times, an 27% are levered more than four times. In this context, you could make a pretty good case that 50% of BBB debt would have a high-yield rating based on leverage alone.

Where are better places to invest?

We’re counselling to divide your assets between bendable assets and riskless assets for the liquidity issues that we’re going to encounter. I would put treasuries and agency mortgages as the risk-off, liquid part of the portfolio. You can’t retire on them or really do anything with it. But you can own them tactically to finance the expansion of your bendable assets: Assets that are exposed to mark-to-market risk, meaning they go up and down, so they may be exposed to liquidity risks. But they provide you yield today and their claims will survive into the next cycle, if you have done your categorization right.

What are attractive bendable assets?

Bendable is what we refer to as true investment grade credit. Also, AAA-rated commercial mortgage-backed and asset-backed securities as well as senior non-agency residential mortgage-backed securities. Stuff that we’re invested in obviously. In some cases, AAA-rated CLO tranches can potentially make some sense, too.  And, if you can find them, some high yield securities maybe, or a few emerging market securities. You try to find companies with a wide enough moat around what they’re doing, like regulated utilities as long as they’re not in California where you have a special environment with damage claims from wildfires.

1881-S Morgan Dollar PCGS MS68PL

Spectacular, 1 of Only 5

This example exceeds the quality of almost all other PL 1881-S dollars. There are some splashes of delicate golden toning (which are far more subtle than seen in our images) around the borders, but most of each side is brilliant. The reflectivity of the fields is captivating, but the true hallmark of this coin is its state of preservation. Liberty’s cheek is essentially flawless. If you like it, based on our pictures, you will love it in hand. Tied with four others for the highest graded by PCGS. 

Offered at $9,775 delivered

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