Market Musings 031222 part 1:
Income Bonanza Time
Today is an excellent time to hunt for income.
A Historically Bad Year for Bonds, so far
Did you know that bonds have had an extremely rough year?
Which is somewhat surprising – if you look historically at times when there has been economic uncertainty and the recession either about to happen or coming squarely into view, it is quite normal for economically sensitive asset classes like stocks and real estate to perform relatively poorly, as indeed they have done over 2022.
However, in general terms, when stocks and real estate do so badly because of a poor economic outlook, it is precisely at this point that bonds, and particularly government bonds, tend to go up.
They perform better because they firstly provide some security and more conservative investment. So it's a way for investors to de-risk their investments away from stocks and real estate.
At the same time, the weaker economic environment tends to be good for bonds, not only because of their safe haven qualities, but also because inflation tends to be lower as a result of lower demand.
Of course, 2022 has been an extreme outlier in this regard, because one of the key motors of this economic recession has been this unexpectedly rampant inflation, which is not usually the case when entering economic recession.
So 2022 has perversely been the worst single year for a balanced portfolio between stocks and bonds in the last 100 years for which we have data. In fact, according to Bank of America, 2022 has been the worst year in 230 years for US Treasury bonds.
Worst year in 100 years for US balanced 60 stocks: 40 bonds portfolio
Soure: Bank of America
Either way, this has been an extreme year for balanced investors in stocks and bonds because for once, both asset classes have done particularly poorly at the same time. Now, the last time that stocks and bonds both went down in the same year was in 1994. But even then, bonds hardly went down.
They went down a few percent, but not very much. In contrast, this time bonds are down sharply. US bonds, ten year bonds have lost 15% over the year to date, which is far and away their worst performance in many,…
