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There Is No Fixed Income Asset That Has Outperformed US Cash In 2023

There Is No Fixed Income Asset That Has Outperformed US Cash In 2023

On a day when the 10Y TSY yield briefly topped 5%, here is a remarkable…



There Is No Fixed Income Asset That Has Outperformed US Cash In 2023

On a day when the 10Y TSY yield briefly topped 5%, here is a remarkable stat from DB's Jim Reid: as the DB strategist writes in his Chart of the Day note, after this week’s latest bond sell-off, there is now no fixed income asset that has outperformed USD cash amongst the main assets DB uses in its monthly performance review.

The last holdout was US HY and with this week’s bond sell-off, the return of the iBoxx US HY index has dipped below the return of US T-bills YTD. While US junk had until recently been seen as a strong performer this year, the returns show how difficult it is for any duration to perform in a sell-off, especially in a heavily inverted curve environment where carry is negative for government bonds relative to cash.

Reid's chart below is an abridged selection from the bank's performance review showing where T-bills rank YTD in USD terms. As discussed, it now eclipses all DB's main global fixed income indices. To outstrip it you have to go into selected equities, Oil or Gold.

Clearly, the NASDAQ (+28.1%) has trounced everything and has taken the S&P (+13.8%) with it. However, the equal weight S&P 500 has underperformed cash at just under 1% return YTD in total return terms, in other words aside for AI or Obesity-linked stocks, 2023 has been a dismal year.

The interesting thing, according to Reid, is if you’d told most people at the start of the year that 10yr yields would be around 5% by October, not many people would have wanted to own the NASDAQ given the near one-to-one negative correlation to yields in prior quarters. So AI has helped create a dramatic decoupling.

Tangentially, this reminds us of another Chart of the Day, this time from Apollo's Torsten Slok (and a former colleague of Jim Reid) who looked at the PE multiples of the S&P7 and the S&P 473. As Slok calculates:

  • The P/E ratio for the S&P493 has fluctuated around 19 in 2023.
  • And the P/E ratio for the S&P7 has increased from 29 to 45, see the first chart below.

The bottom line, Slow writes, is that "returns this year in the S&P500 have been driven entirely by returns in the seven biggest stocks, and these seven stocks have become more and more overvalued." Of course, we already knew that.

Another remarkable observation from Slok that ties in with what Reid wrote, is that the ongoing overvaluation of tech stocks has happened "during a year when long-term interest rates have increased significantly. Remember, tech companies have cash flows far out in the future, which should be more negatively impacted by increases in the discount rate."

Slok's conclusion is that "tech valuations are very high and inconsistent with the significant rise in long-term interest rates, see the second chart."

In short, something has to give. Either stocks have to go down to be consistent with the current level of interest rates. Or long-term interest rates have to go down to be consistent with the current level of stock prices.

Finally, going back to Reid, the good news is that yields are higher across the board, so positive returns from here should get easier in fixed income (and is why Goldman is now buying calls on 10Y Treasuries). However, with credit spreads still very tight, spreads would likely widen more than government bonds rally in a recession so one still needs to have a soft landing to get maximum benefit.

Tyler Durden Thu, 10/19/2023 - 20:30

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Crypto community accuses WSJ of exaggerating Hamas crypto funding by 99%

Crypto community members have accused The Wall Street Journal (WSJ) of publishing misleading information about Hamas crypto-related funding. On Oct. 10,…



Crypto community members have accused The Wall Street Journal (WSJ) of publishing misleading information about Hamas crypto-related funding. On Oct. 10, WSJ reported that Hamas had acquired approximately $90 million in cryptocurrency to finance a surprise attack against Israel. This revelation drew significant attention from prominent crypto skeptics, who swiftly used this funding to illustrate how the industry aided malicious actors. Several U.S. lawmakers, spearheaded by Senator Elizabeth Warren, cited the WSJ report in a letter addressed to the White House and the Treasury Department. The lawmakers expressed concerns about the national security risks posed by cryptocurrencies due to their potential use in terrorist financing.

Community says WSJ overreported terror funding by 99%

Sam Callahan, the lead market analyst at Swan Bitcoin, countered that “WSJ’s figure for crypto use in financing Hamas was off by over 99%,” citing a recent Chainalysis report. According to Callahan, the media firm had mistakenly counted an entire exchange’s trading volume for the group’s address. He added:
“The actual funds that went to known terrorist-linked addresses was substantially less.”
Consequently, Callahan urged WSJ to retract the story because “politicians with an agenda will likely continue to use this fake news as evidence to attack an industry they have a personal vendetta against.” Meanwhile, crypto stakeholders, including Nic Carter, also shared Callahan’s view, claiming that the journalists refused to retract their story despite contacting them via mail. He added:
“This is a journalistic failure as egregious as the NYT’s reporting on the rocket striking a hospital in gaza. not directly responsible for loss of life, but evidencing a similarly callous disregard for the truth. Boycotting the WSJ until they retract.”
Sam Lyman, the director of public policy at Bitcoin (BTC) miner Riot Platforms, pointed out that the WSJ report failed to mention that Hamas’ crypto fundraising program was a complete disaster. He said the fundraising had “exposed [the group] key donors to criminal prosecution and financed its two greatest enemies, the US and Israel, to the tune of millions of dollars.” CryptoSlate reported that Coinbase had argued that blockchain technology could be used to fight terrorism funding, adding that terror funding still relies on the traditional financial system, not crypto. The post Crypto community accuses WSJ of exaggerating Hamas crypto funding by 99% appeared first on CryptoSlate.

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Bitcoin ETF to trigger massive demand from institutions, EY says

Bitcoin is facing a lot of pent-up demand from institutions amid investors closely monitoring spot Bitcoin ETF news, Ernst & Young’s global blockchain…



Bitcoin is facing a lot of pent-up demand from institutions amid investors closely monitoring spot Bitcoin ETF news, Ernst & Young’s global blockchain leader Paul Brody says. Bitcoin (BTC) is in massive demand from institutional investors but awaits a spot BTC exchange-traded fund (ETF) approval to trigger a buying rally, according to a blockchain executive at the professional services provider Ernst & Young (EY). EY’s global blockchain leader Paul Brody believes that Bitcoin faces a lot of pent-up demand from institutions due to United States regulators not approving a spot Bitcoin ETF for years. Brody discussed the outlook for the cryptocurrency adoption on CNBC’s Crypto Decrypted on Oct. 23, declaring that trillions of dollars in institutional money are waiting to enter Bitcoin once a BTC ETF is approved. “But any of these other institutional funds, they can’t touch this stuff unless it’s an ETF or some other kind of regulatory blessed activity,” EY’s blockchain expert said, adding:
“If you look at people who are buying Bitcoin, they are buying it as an asset. They are not buying it as a payment tool. Those who are buying Ethereum, are buying it as a computing platform for business transactions and DeFi [decentralized finance] services.”
Brody’s remarks come amid global investors closely watching the crypto regulatory process by the U.S. Securities and Exchange Commission (SEC), which has not approved a single spot Bitcoin ETF so far. A number of companies, including Grayscale Investments, ARK Investment, BlackRock and Fidelity, have filed with the SEC for multiple Bitcoin ETF products and are awaiting a regulatory response. Related: Grayscale files for new spot Bitcoin ETF on NYSE Arca Grayscale, which in August 2023 won an SEC lawsuit for a spot Bitcoin ETF review, has recently filed an S-3 form registration statement with the SEC to list its Grayscale Bitcoin Trust on the New York Stock Exchange Arca. According to Bloomberg senior ETF analyst Eric Balchunas, a recent amendment to the spot Bitcoin ETF by ARK Invest and 21Shares is a “good sign” of progress and impending approvals. The ETF expert believes that the ETF amendments filed in mid-October 2023 could be in direct response to concerns the SEC has asked ETF issuers to address. Magazine: Big Questions: Did the NSA create Bitcoin?  

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Dave Ramsey explains how budgeting is a ‘key to financial peace’

One important move can help people take control.



Personal finance radio personality and author Dave Ramsey speaks frequently about some of the basics involved with handling money.

One of the first things he believes people who are getting serious about finances should do is create an emergency fund to cover unexpected expenses.

Related: Forget Bud Light, popular beer brand files for bankruptcy

The next step Ramsey advises is to get completely out of debt, except for a mortgage on a home if a person has one. A mortgage is different than other debt because it secured by the value of the home.

The debts to pay off first include cars, credit cards and student loans, Ramsey counsels. And he suggests paying them off one by one using what he calls the debt snowball method.

"Put them in order by balance from smallest to largest — regardless of interest rate," he wrote on his website, Ramsey Solutions. "Pay minimum payments on everything but the little one. Attack that one with a vengeance. Once it's gone, take that payment and put it toward the second-smallest debt, making minimum payments on the rest."

Once that is achieved, Ramsey advises investing 15% of a person's household income in retirement.

His next recommendations are saving for college funds and paying the home off early. Then, Ramsey says, a person is in a position to build wealth and to give.

Budgeting can be simpler than a lot of people think.


The trick is to stay motivated

In order to work successfully through these steps, it is important, Ramsey says, to stay motivated and on budget.

"Sometimes the excitement of having fun right now or the short-term thrill of impulse spending can take our eyes off our priorities," he wrote. "And sometimes life gets so busy that we lose focus on how to stay on budget."

"As a result, our budgeting — a major key to financial peace — takes a back seat. It happens to everyone. So first, show yourself some grace," he added.

Ramsey believes that, while budgeting can be exhausting, it is worth it in the end.

"You can't take charge of your money without a budget," he wrote. "Why? Because when you budget, you tell every dollar what to do. Every. Single. Dollar. That’s taking control!"

"So maybe you don't wake up early when it's time to create a new budget because you just can't wait to get started," he added. "That's okay. You don't have to be jazzed about the process of budgeting as long as you’re pumped about what budgeting does for you, today and in the long run."

Ramsey offers some tips

Because staying motivated to keep on budget is difficult, Ramsey put together a few suggestions on his website.

One of those tips is the mental exercise of making goals visual.

"Hang up images around the house that represent your financial goals," Ramsey wrote. "Paying off that car? Put a picture of it on your fridge to remember why you're cooking at home instead of ordering that pizza. You're adjusting your budget and living by it so you can make big things happen. So, make sure you're reminding yourself of those big things. Every. Day."

Ramsey also encourages people to celebrate wins, both big and small.

"If you're motivated by rewards, don't feel bad," he wrote. "First of all, that's natural. Second, use that to keep up your money motivation. When you reach a goal — even a small one — celebrate! After you budget three months straight, pay off a debt, or cut extra spending for 30 days, treat yourself to a budget-friendly reward."

The bestselling author also has a few words to say about use of social media.

"Let's be honest, your budget is more important than your Instagram feed," Ramsey wrote. "Yes, we said it! It's way more important to track expenses and stay on top of your spending than it is to see what a near-stranger is having for dinner. Of course, it's okay to jump on social media, but make sure it's not getting more of your attention than your money goals."

Ramsey adds a banking tip as well to help people with staying true to a budget.

"Wherever possible, put your goals on autopilot," he wrote. "Set up automatic bank drafts that send money directly to your retirement accounts, mortgage company or lenders."

"If you never see the money in the first place, you're less likely to miss it — and more likely to be pleasantly surprised by your progress along the way," Ramsey added.

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