I received many emails and questions on “why” we are adding the U.S. Treasury bond to our portfolios. The question is understandable, given its dire performance in 2022, where bonds had the biggest drawdown since 1786.
However, there is, as they say, “more to the story than meets the eye.”
A previous survey from BNY Mellon shows that very few people understand the bond market and how it works.
“A BNY Mellon Investment Management national survey on fixed-income investing was stunning: A measly 8% of Americans were able to accurately define fixed-income investments.“
Such is not surprising since the financial media focuses only on the “sexier” side of the business – equities.
However, bonds are necessary from the investment perspective and the economic view. As we have discussed previously, low-interest rates are a function of an overly indebted economy. If rates rise too much, bad things have historically happened.
“The chart below is the interest service ratio on total consumer debt. (The graph is exceptionally optimistic as it assumes all consumer debt benchmarks to the 10-year treasury rate.) While the media proclaims consumers are in great shape because interest service is low, it only takes small increases in rates to trigger a ‘recession’ or ‘crisis’ event.”
Of course, as noted, interest rates reflect economic growth. As economic growth slows and disinflationary pressures present themselves, rates will ultimately track economic growth lower.
A Long HistoryOf Rates & Economic Growth
The chart below shows a VERY long view of interest rates in the U.S. since 1854.
As noted, interest rates are a function of the general economic growth and inflation trend. More robust growth and inflation rates allow higher borrowing costs to be charged within the economy. Such is whybonds can’t be overvalued.To wit:
“Unlike stocks, bonds have a finite value. At maturity, the principal gets returned to the lender along with the final interest payment. Therefore, bond buyers know the price they pay today for the return they will get tomorrow. As opposed to an equity buyer taking on investment risk, a bond buyer is loaning money to another entity for a specific period. Therefore, the interest rate takes into account several risks:”
Default risk
Rate risk
Inflation risk
Opportunity risk
Economic growth risk
“Sincethefuture return of any bond, on the date of purchase, is calculable to the 1/100th of a cent, a bond buyer will not pay a price that yields a negative return in the future. (This assumes a holding period until maturity. One might purchase a negative yield on a trading basis if expectations are benchmark rates will decline further.) “
Therefore, it was unsurprising that the recent inflation surge preceded higher interest rates. However, that inflation push was artificial from massive monetary interventions. As monetary inputs fade, disinflation will push yields lower.
Disinflation from the contraction of liquidity will coincide with slower economic growth and, as noted above, lower interest rates.
Buy Bonds For Capital Appreciation & Protection
Understanding the dynamics between inflation, economic, and interest rates is a critical backdrop to understanding why now is likely the opportunity to increase bond exposure in portfolios for both income and capital appreciation. Most people view bonds as an income-only investment. With yields low, why own bonds? However, there is another aspect to bonds; capital appreciation.
There is an inverse relationship between bond prices and interest rates. When interest rates are low and rising, bond prices fall. However, when they are high and falling, bond prices rise.
In our portfolio management process, we buy bonds for three reasons:
Capital appreciation – the same reason we buy equities
Total return – interest income plus capital appreciation
If you consider bonds as an “asset class,” the analysis changes from an income strategy to a capital appreciation opportunity.
Using a monthly chart, treasury bonds are at a critical oversold juncture. Historically, when bonds were this oversold such coincided with a financial event or recession. Such is not surprising given, as noted above, the impact of higher rates on a highly leveraged economy.
Since interest rates are the inverse of bond prices, we can look at this long-term chart of rates to determine when Treasury bonds are overbought or oversold.
In 2018, rates slid lower as the realization that Fed rate hikes would negatively impact economic growth and financial stability.
As 2019 progressed, the yield curve inverted, pushing rates lower as investors sought safety.
In March 2020, as the pandemic raged, the demand for safety caused rates to plunge to record lows.
In 2021, rates surged as stimulus-induced inflation surged.
Historically, bonds are the beneficiary of a “risk-off” rotation during market downturns. Such not only provides a return but reduces overall portfolio volatility.
Conclusion
The hope is that the Fed will again start dropping interest rates. However, as we have noted previously, the only reason for the Fed to cut rates would be to offset the risk of an economic recession or a financially related event. Should such occur, the “risk off” rotation would cause a drop in rates toward the pandemic-era lows. Such a decline would imply an increase in bond prices of approximately 50%.
In other words, the most hated asset class of 2022 may outperform stocks by a large margin if a recession occurs.
So, yes, we are opportunistically buying bonds for our portfolio.
What are the best metaverse projects that investors should keep on their radar? Cointelegraph Research Metaverse Ranking Awards the top projects
The metaverse continues to expand, with industry giants and upcoming players racing to seize a slice of the potentially trillion-dollar pie. Close to $2 billion was invested in blockchain-based metaverse deals in 2022, according to Cointelegraph Research’s VC database.
A 2022 report by McKinsey estimated the metaverse industry to potentially generate up to $5 trillion in revenue by 2030, an estimate overtaken by Citi's forecast of $8 to $13 trillion. These estimations reflect significant growth from the global metaverse market of $65.5 billion recorded in 2022. To realize these optimistic forecasts, the metaverse industry would need to sustain an impressive 85% compound average growth rate.
VC metaverse funding in 2022. Source: Source: Cointelegraph Research.
Investors will never guess which metaverse won Cointelegraph’s 2023 Ranking of Metaverses. This blockchain-based metaverse has over $61 million in value locked in its smart contracts and over 8,000 monthly users. To learn more about the project that enables true ownership of in-game assets and has a deflationary token model, read the report now.
Yet, the metaverse landscape is not without its difficulties. Market cap losses have plagued industry leaders, with Meta, formerly known as Facebook, losing 77% of its market cap equivalent to $800 billion between late 2021 and 2022. As a result, Meta’s CEO, Mark Zuckerberg, plans to eliminate 21,000 jobs in 2023.
Despite setbacks, industry titans like Microsoft, Apple, Nvidia, and Qualcomm are all developing their metaverse strategies. Apple's entry into the metaverse is highly anticipated with its AR/VR headset launch slated for June 2023. Similarly, gaming firms like Epic and Roblox utilized the pandemic lockdown to their advantage, successfully launching metaverse concerts that reached millions worldwide.
In 2022, mergers, acquisitions, and financing in the metaverse realm rose from $13 billion in 2021 to over $120 billion, bolstered by Microsoft's $69 billion acquisition of Activision. This deal had a 7.6x EV/Sales multiple and a 20.2x EV/EBITDA multiple. Although valuation multiples are expected to decrease in line with higher interest rates, investment activities remain robust.
Top blockchain metaverse projects are also attracting significant capital. Leading blockchain metaverses measured by market cap include The Sandbox ($1.02 billion), Decentraland ($905 million), and Axie Infinity ($830 million). Year to date (YTD) performance of The Sandbox is 44%. Decentraland’s YTD is 62%. Neither of them surpasses Bitcoin’s YTD retu of 68%.
For investors seeking exposure to the metaverse, ETFs like the Fidelity Metaverse ETF (FMET) and Roundhill Ball Metaverse ETF (METV) offer viable options. However, the new Cointelegraph Research study reveals that a majority of token transactions in metaverse projects result from speculation rather than actual in-metaverse usage, a trend that calls for cautious investment.
The Cointelegraph Research team
Cointelegraph’s Research department comprises some of the best talents in the blockchain industry. The research team comprises subject matter experts from across the fields of finance, economics and technology to bring the premier source for industry reports and insightful analysis to the market. The team utilizes APIs from a variety of sources in order to provide accurate, useful information and analyses.
The opinions expressed in the article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.
How a neighborhood-focused Baltimore initiative is employing patience, partnership, and resident leadership to drive long-term change
At the corner of North and Cecil Avenues in Central Baltimore sits the newly constructed home of a community-based organization, Roberta’s House, which…
At the corner of North and Cecil Avenues in Central Baltimore sits the newly constructed home of a community-based organization, Roberta’s House, which provides mental health and grief counseling services to residents who may not otherwise get these much-needed services. The building represents a transformational investment designed to bring new life to a vacant block that was previously occupied by rowhomes.
When construction on Roberta’s House broke ground in 2018, the two sides of Cecil Avenue at this corner were divided, both physically and symbolically. The juxtaposition of abandoned rowhomes on one side and hope rising from the ground on the other side, sparked a thought among staff at Baltimore’s Weinberg Foundation: What if this building were to be the start of a ripple of redevelopment and opportunity in the neighborhood?
And so, the revitalization of this one building on this one corner would soon become part of something bigger—a philanthropic-funded effort to improve the health and life trajectory of Central Baltimore residents. This piece tells the story of lessons from the Greenmount Life, Opportunity, and Wellness (GLOW) Initiative, a new effort to concentrate financial and social investment in select neighborhoods that have long experienced underinvestment.
Developing a hyper-local strategy rooted in strength
Created in 1990, The Harry and Jeanette Weinberg Foundation had been funding Baltimore-based nonprofits for 30 years when, beginning in 2018 and following many conversations with stakeholders, the foundation adopted a hyperlocal, place-based strategy (while continuing to provide grants across the Baltimore region). The premise was that by focusing some of the foundation’s financial and social capital in a compact geographic area, it could drive positive outcomes in an even more targeted way. Out of this decision came GLOW.
We knew that one of the most important factors in getting GLOW off the ground was choosing the right area on which to focus our efforts. Several factors led to our selection of four Central Baltimore neighborhoods, Midway, Barclay, Harwood, and Greenmount West, including:
Need: Many residents of our target neighborhoods had limited economic opportunity and poor health. Midway, for example, had the highest unemployment rate of any neighborhood in the city, the sixth lowest life expectancy, and one of the city’s highest concentrations of children living in poverty.
Concurrent investment: While Baltimore City, despite decades of disinvestment, had designated the area as one of its “Impact Investment Areas,” other major developments, including a large nonprofit makerspace, were already underway or forthcoming in the area. Meanwhile, a coalition of funders had also recently launched the Central Baltimore Future Fund to catalyze commercial redevelopment. We recognized that GLOW would be more successful if it aligned with those efforts.
Partners: The area also is home to four public schools and many nonprofits, including Central Baltimore Partnership (CBP), a nonprofit collaborative of over 100 organizations dedicated to the revitalization of Central Baltimore neighborhoods. These partners already had meaningful relationships and capacity that if brought together could help achieve more positive outcomes for the neighborhoods around GLOW’s goals.
With all of this in mind, Weinberg Foundation saw an opportunity to improve Central Baltimore’s economic and public health outcomes by working with CBP to physically transform the four neighborhoods, while placing special emphasis on health and educational outcomes for their residents. In this way, the Foundation was able to tap into existing organizational infrastructure—essentially building from strength instead of building from scratch.
Strong and glowing: From an idea to implementation
The central purpose of GLOW is to mobilize and coordinate an array of organizations to improve the health and life trajectory of Central Baltimore residents by improving access to, and utilization of, primary health care, nutritious food, and enriching educational or career opportunities for youth. While the long-term goal is to make an impact on key indicators like unemployment and life expectancy, we know that those will take years. In the interim, we are squarely focused on supporting the initiative as a platform for aligning multiple organizations, sourcing and advancing residents’ goals and desire, lifting up residents as leaders, and attracting additional resources to the neighborhood.
We’ve had some early wins. For example, GLOW has established a network of more than 30 service providers, including a national organization it recruited to the neighborhood, which will connect 125 families with housing, employment, financial, and supportive services that help increase economic mobility. Other wins include expanding paid summer youth opportunities in the neighborhood by partnering with Banner Neighborhoods to operate a YouthWorks site, and catalyzing the development of several key capital projects including an outdoor education and community health hub along with a teaching kitchen. Along the way, we’ve also learned a lot of lessons relevant for any equity-focused place-based initiative, including:
The lead organization for a place-based initiative—CBP in the case of GLOW—must be adept at navigating a range of efforts and stakeholders. Specifically, it must be capable of both strategic and tactical efforts and have trust and relationships with a range of stakeholders, including funders, government leaders, and residents. The organization must focus on strategy at all levels and not get bogged down in the day-to-day of providing services and activities in the neighborhood.
Genuine partnership means more than ‘partners on paper’. Partnership, like collaboration, is a term that gets used a lot and can mean different things to different people. With GLOW, we have found that true partnership requires more than regular meetings or information sharing. It demands building trusting relationships rooted in an “if you win, I win” mentality instead of in the scarcity mindset that often pervades the nonprofit sector, especially when it comes to working with foundations. It means jointly applying for funding, being clear about expectations and roles, and navigating conflict.
Community leadership is as important as community engagement. For place-based initiatives like GLOW, it’s critical that residents not just be engaged in typical ways like surveys or public meetings. Instead, residents should have genuine leadership and decision-making authority— meaning equal or greater representation on the committee overseeing the initiative, with compensation for their time and insights.
Planning takes time and resources. Place-based initiatives require coordinating across city agencies, nonprofit organizations, and resident leaders—as well as including visible wins in early months to build trust and buy-in with residents and partners. This took us two years and required flexibility as the COVID-19 pandemic extended timelines and shifted our attention. Even under normal circumstances planning requires significant staff time to thoughtfully engage residents and stakeholders in small group and one-on-one conversations.
Patience is essential. Place-based initiatives require a long-term commitment due to the nature of developing the infrastructure across sectors to create systemic, long-term change. Phases include understanding the challenges and opportunities in the community, building the infrastructure across multiple partners, and capacity building for anchor institutions—all before achieving neighborhood-level outcomes.
With these lessons in mind, we are continuing to invest in and build GLOW so it can serve as a platform for convening resident and stakeholders to drive change in Central Baltimore for many years to come. By focusing on strategy, building true partnerships, centering residents as leaders, investing in planning, and operating with a sense of flexibility and patience, we believe other funders and community-based organizations can build similar initiatives to help transform underinvested neighborhoods.
Alex Zhavoronkov, PhD, founder and CEO of Insilico Medicine (“Insilico”), a generative artificial intelligence (AI)-driven drug discovery company, will present on the latest company milestones at the Jefferies Global Healthcare Conference on June 8, 4:30pm ET at the Marriott Marquis in New York City. The conference brings together hundreds of public and private healthcare companies and thousands of executives, as well as institutional investors, private equity investors, and VCs discussing trends and investment opportunities in healthcare in the US.
Credit: Insilico Medicine
Alex Zhavoronkov, PhD, founder and CEO of Insilico Medicine (“Insilico”), a generative artificial intelligence (AI)-driven drug discovery company, will present on the latest company milestones at the Jefferies Global Healthcare Conference on June 8, 4:30pm ET at the Marriott Marquis in New York City. The conference brings together hundreds of public and private healthcare companies and thousands of executives, as well as institutional investors, private equity investors, and VCs discussing trends and investment opportunities in healthcare in the US.
Zhavoronkov will share updates on Insilico’s rapidly progressing pipeline of novel therapeutics available for partnering and licensing, and showcase its new AI-driven fully robotic target discovery and validation platform, and end-to-end drug discovery platform, Pharma.AI, which includes target identification (PandaOmics), drug design (Chemistry42), and clinical trial outcome prediction (InClinico). The platform has produced three drugs that have reached clinical trials. Insilico’s lead drug for the devastating chronic lung disease idiopathic pulmonary fibrosis (IPF), the first AI-discovered and AI-designed drug to advance to clinical trials, will soon be entering Phase 2 trials with patients. Insilico’s generative AI-designed drug for COVID-19 and related variants has been approved for clinical trials and has a number of design advantages over existing COVID-19 drugs. Most recently, the company announced that its USP1 synthetic lethality inhibitor received FDA IND approval for the treatment of solid tumors.
There are 31 drugs in Insilico’s pipeline available for partnering and licensing for indications including cancer, fibrosis, and central nervous system diseases, and the Company has nominated 12 preclinical candidates in the past two years, most recently a potentially best-in-class preclinical candidate targeting ENPP1 for cancer immunotherapy and the potential treatment of Hypophosphatasia (HPP).
Insilico has partnered with leading pharma companies, including Fosun Pharma and Sanofi, to accelerate their programs. The Company has raised over $400m in funding to date from notable biotech and tech investors.
About Insilico Medicine
Insilico Medicine, a clinical-stage end-to-end artificial intelligence (AI)-driven drug discovery company, connects biology, chemistry, and clinical trials analysis using next-generation AI systems. The company has developed AI platforms that utilize deep generative models, reinforcement learning, transformers, and other modern machine learning techniques to discover novel targets and design novel molecular structures with desired properties. Insilico Medicine is delivering breakthrough solutions to discover and develop innovative drugs for cancer, fibrosis, immunity, central nervous system (CNS) diseases, and aging-related diseases.
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