Why Would Anyone Buy Bonds Now?

My kids school district just announced it will be closed for six weeks (remember summer vacation is only 10 weeks). When I heard this, the very first feeling that went through my body was sadness. 

Sadness for all the paycheck to paycheck earners that are absolutely going to get crushed. It’s one thing to be annoyed, it’s another to not know where the next rent check or full grocery bag is going to come from. And who’s going to care for their kids for the next six weeks?

And what about the 38% of healthcare workers that have school-aged kids? Those people won’t be at the hospital or clinic, they’ll be at home trying not to yell at their kids while they figure out how to pay their bills.

Anyway you measure the last two weeks—it’s historic. The economy. The markets. People’s lives… no one will escape this one. 

Here we go. Here are some of the topics I cover in this week’s video:

  1. Who the heck is going to buy a bond when cash is yielding the same or better? Give your money to the US government for 10 years for half a percent a year of income!? Is someone really going to lock their money up for ten years and give the US government $100k to make $500 a year? 
  2. Corporations will now have “cover” for COVID-19 to drag out all their own financial dead-bodies during the next earnings call. They can finally clean house and blame someone else for their missed earnings. Brace yourself.   
  3. The next major support for the S&P500 is 2,350 (the low of Q4-2018)—that’s about 8% away from where the market closed on Thursday, March 12th (when I’m writing this.)
  4. How to know when we are closer to the low than not. Hint: it partially has to do with what Trump and Powell say, but not how you might think about it. I’ll explain.
  5. During the last recession the Fed dropped rates 5.25% in total. They started at 5.25% and over the course of 17 months, went all the way down to 0%. And once they were at zero, the market continued to fall for another three months. You can do the math of course. In this current situation, the Fed rate started at 2.5%. If you subtract 5.25% from that number you get -2.75%. Read: I believe bonds are more in trouble than stocks. And I believe this bond-bloodletting (I know, it’s a bit hype’y) has started. 
  6. It could be worse. 

You can find the entire video HERE