Seeing the results of Apple’s decision to split its stock (a higher share price), Elon Musk, the world’s greatest stock promoter and decent car manufacturer, decided to split Tesla’s shares. Sure enough, Musk’s bet has paid off with Tesla’s shares rising almost 7% on the news. This is true even though a stock split simply divides the pie into more pieces. Institutional investors should pay attention here. The assumption that large stocks are priced rationally because there is no way the smart money in a stock this big ($250 billion plus cap) falls apart if a stock split results in a 7% … [Read more...]
About Jeremy Jones, CFA
Even Horrible Businesses Can Make Money at These Rates
Thanks to a bailout of the corporate bond market by the Fed that has institutionalized moral hazard (I get the reward, you take the risk), junk bond issuers are paying rates of less than 3%. Ball Corp, which is rated BB+ sold $1 billion worth of 10-year bonds at a coupon of 2.875% this week. Ball corp. isn’t a horrible business, but at rates this low, even horrible businesses can make money. The rate distortion is even more disturbing in the investment-grade market. Google, an AA-rated company, recently issued 5-year bonds at a 0.45% interest rate. What will Google, which generates … [Read more...]
The Genesis of Biden’s Capital Gains Tax Proposal
A President Biden would double the tax rate on capital gains. The highest marginal rate on capital gains would rise from 20% to 39.6%. Add on the Obamacare surtax of 3.8% and you are looking at a 43.4% tax rate on capital gains. Why does Biden want to increase the capital gains tax rate? Do higher capital gains rates lead to more tax revenue? It’s not even close. Lower, not higher, capital gains rates generate more capital gains tax revenue. So why the focus on capital gains tax rate? For Biden and the progressive Left it’s about closing the wealth gap. Will higher capital gains … [Read more...]
The Cost of Retirement Income Has Never Been So Expensive
At the Financial Times, John Dizard explains how Fed policy is leaving retirees broke. He writes: At the present trajectory of Fed policy, the 10-year bond will be close to yielding zero per cent by election day in November. The Fed will be trying to defend the “zero lower bound”, a set of points on a yield curve just above negative interest rates, for short-term funding. But by the time the 10-year rate gets within 10 or 20 basis points of the ZLB, the curve is telling you that there is no reward for saving money for the long term. At that point, which by simple extrapolation comes in … [Read more...]
“Double Down” Ben Meng Leaves World’s Biggest Pension Fund
This should be a welcome relief to participants in California’s public pension plan. Ben Meng the man who steered the pension plan out of tail hedge strategies that soared just before the market crash and decided to leverage up the plan’s portfolio to meet return objectives is leaving. Hopefully, his successor will take a more prudent approach to risk management. The FT has more: Calpers, the $400bn Californian employee pension fund, said late on Wednesday that Ben Meng would leave effective immediately. The fund said Dan Bienvenue, deputy chief investment officer, would serve as interim … [Read more...]
Here’s How Tesla Really Became the Biggest Auto Manufacturer
At The Wall Street Journal, Holman W. Jenkins at the bizarre case of Tesla, the auto industry, and how politicians' efforts to combat emissions have created an actual deterrent to EV startups. He writes: Until the media starts doing its job, this slide toward policy idiocy will only accelerate. Such government interventions always tend to cartelize the industry they take aim at. That’s the drift here. Mandates that result in electric vehicles being dumped on the market are a deterrent to new EV entrants. Tesla wants to shelter behind these barriers too, though you would never get Mr. Musk to … [Read more...]
Is the Stock Market Too Big to Fail?
There is some truth in that headline. The central bankers' focus on the performance of financial markets and specifically the stock market has turned one of America’s greatest strengths into a liability. Last time the Fed bought Treasury securities to prop up the market. This downturn, they waded into corporate bonds. Is there any doubt that during the next big down cycle, the Fed’s emergency lending powers will be used to buy stock prices directly? What a sad state of affairs. Bloomberg has more on one analyst's take on the stock market's emerging too big to fail status. Lu Wang … [Read more...]
Corporate Bond Yields: What You Can Earn Today
Corporate bonds are a good place to pick up yield in the bond market. With yields on government bonds in much of Europe and Japan in negative territory, corporate bonds offer a higher-yielding alternative. Corporate bonds are a broad universe, though. There are investment-grade corporate bonds, junk bonds, foreign corporate bonds, hybrid corporate bonds, and floating-rate corporate bonds among other variations. Investment-grade corporate bonds are the largest part of the corporate bond market. How Much Do Corporate Bonds Yield Today? We break the investment-grade corporate bond … [Read more...]
Junk Bond Yields
What do junk bonds yield today? The table below lists the yield of the Merrill Lynch junk bond index (High-Yield index), as well as the latest SEC yield on some of the top junk bond (high-yield) dedicated funds. A note of caution when you are looking at yields on junk bond funds; Like all SEC yields, these yields are based on the last 30-days of income generated by the fund. They are not directly comparable to the yields on the Merrill Lynch junk bond indices. Junk Bond DescriptionSymbol Yield 6.30.20 Yield 7.31.20Merrill Lynch U.S. High-Yield Indexn.a.5.61%5.46%Vanguard … [Read more...]
Ginnie Mae (GNMA) Bond Yields
What do Ginnie Mae (GNMA) bonds yield? The table below lists the yields on two of the major Ginnie Mae (GNMA) indices as well as the latest SEC yield on some of the top Ginnie Mae (GNMA) dedicated funds. A note of caution when you are looking at yields on Ginnie Mae funds. Like all SEC yields, these yields are based on the last 30-days of income generated by the fund. They are not directly comparable to the yields on the Merrill Lynch and Barclay’s Ginnie Mae (GNMA) indices. Description Symbol Yield as of 6/30/2020 Yield as of 7/31/2020 Merrill Lynch Ginnie Mae … [Read more...]
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