- The Fed Put is the belief that the Fed will rescue the market
- The Fed has two main tools in its toolbox: cut interest rates and buy securities
- The Fed's recent moves were necessary to help stabilize markets and the economy
Over the past few weeks the bond market has been on a rollercoaster of such velocity that it's leaving investors with whiplash.
The Federal Reserve's two interest-rate cuts, totaling 150 basis points, was a useless and desperate attempt to boost the economy and the market. That it barely registered shows the Fed's impotence. Making money cheaper doesn't help if there's no demand. The problem is people aren't leaving their homes. But it doesn’t hurt either, and could speed the recovery when it comes.
As portfolio managers trying to make money in a world of economic uncertainty, we are constantly scanning the horizon for the biggest issues that can sway or shock global markets. When the Brexit referendum passed in 2016, it certainly shocked the market, sending haven assets such as US Treasurys into rally mode.
One of Wall Street's newest strategies is to invest according to Environmental, Social and Governance issues, better known as ESG. It's a way to invest according to a certain ethical philosophy.
"Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights," according to Investopedia.
Topics: Investment Strategy
As managers of bond portfolios, we need to make educated, informed decisions about which sectors offer the best value. Today, one of our favorite sectors in the corporate bond market is the oil industry. The fundamentals have strengthened after years of efficiency improvements and we have confidence in the names we invest in. A series of scary headlines coming out of the Middle East have not changed our view.
Last month, Britain seized an Iranian vessel, then in a single day Iran responded by seizing two British oil tankers in the Strait of Hormuz. These events came on the heels of the U.S. imposing sanctions against Iran in November.
In its May Financial Stability Report, the Federal Reserve said rising sales of risky corporate debt is a top vulnerability facing the US financial system.
However, instead of being scared by the Fed report or the accompanying headlines, we've dug a little deeper and see that, at least in the investment grade universe, there is a good balance between value to be had in the market now.
Topics: Investment Strategy