Recently, it looks as though we are coming to a crucial point in the markets.
Both US Stocks (S&P 500) and Bonds (global government bonds) are at All Time Highs.
Normally, when you are worried, you divests your stocks into bonds, so risk off.
when you are greedy, you sell your bonds and buy more stocks, so risk on.
However, developed markets government bonds yields are at all time low while US stocks are at all time highs. This is compounded by the persistent devaluation of developed markets currencies (less Japan) by the actions of central banks. On the other hand, you have all time lows in commodities with agricultural lows, energy coming off an all time low and gold and silver seemingly resuming their climb from more than a decade ago after the recent 4-5 years bear.
Summing up, we know that generally that
for bonds,
- when bond yields go down, bond prices goes up
- when interest rates go up, bond yields go up and bond prices go down
- in 1998, 10 yr singapore govt bond yield can be 5.69%
- negative yields can result in capital losses
- bond cycles are seemingly reaching the end of the decreasing yield cycle
- half of the developed world govt bond yields are negative
for currencies,
- most european currencies and CNY are dropping vs USD while yen is increasing
- some emerging markets currencies are gaining vs USD (some are commodity producers)
- reallocation of currencies from fiat to gold and silver
for stocks,
- yields are now in stocks? (there's renewed buying in the top yields markets, from income funds?)
- sector rotation in US equities from financials to real estate.
- US S&P 500 just broke out to all time highs (notice the divergence from emerging markets)
Note of caution: in trending markets, they can trend for a long long time.
