YT algorithm finally pushing your video again? Been subbed 2+ years, but the algorithm at some point last year just stopped recommending your content on my page. Guess this is my sign to move funds out of the money market and into TLT/BLV after CPI on Wednesday.
Dr. Meldrum. great information. you identified the one thing I haven't heard anywhere else, that is front running. I worked in the logistic field in Asia, prior to moving back. And, I can tell you the last two months there has been considerable front running...
@41:15 how did you compute the denominator of the spread, I mean what is the exact computation to get the termp premium of the 10y zero coupon bond? Perhaps 10y zc - 1y zc I was thinking, would appreciate a clarification thanks, very instructive video
Love this, love your channel, love your speed run of completed videos at the end. What an inspiring journey 🙏 Looking forward to seeing what you make next!
Thanks Dr. M. Any chance for an Applied Level group / forum to exchange ideas and communicate with like-minded, or at the best similarly-interested(/engaged), individuals? Slack or similar? Unrelated to CFA.
@@MarkMeldrum New and different perspectives from people who have committed to the AL - which in my mind is a subset of the online finance discussions, who might be of higher quality and have a more homogenous work-learn-ethic. Currently, RUclips comments are very interesting but with limited interaction and "community building". Would love to pick the brain of fellow AL-Members more. Unrelated to CFA because of the standards violations in similar groups - but indirectly a place where it will mostly be candidates/members. I think it could be executed in cool ways! :)
Hello Mark, I’m not sure if there’s a section about preferred stocks in the Applied Series-I couldn’t find one myself. However, I would love to hear your thoughts on them, even if they’re not among your favorite financial instruments. Understanding why you might not favor them would still be incredibly valuable to me. I’m particularly curious about your perspective on preferred stocks. If you ever consider making a detailed video on this topic someday, I’d be thrilled to watch it. Thank you in advance for your insights!
49:11 so the fed is cutting but the market expect the bond price is not getting higher, could it because there are some other more attractive markets out there?
The equity rally we have seen over the past two years is mega-cap-driven. Mega-cap is not sensitive to interest rate changes due to its cash piles and ability to raise cheap debt even during elevated money market rates. This means that small-cap is the place to be if you think that -28.5 bps of cuts in 2025 is way too low from an equity size point of view. This is further solidified in my mind after seeing small-caps refinancing early 2020s debt up to 650 bps higher during 2024. The risk is that higher for longer interest rates (until late 2026-27 when a lot of debt matures) will crush them. Small-cap fundamentals also look more appealing which improves the risk/return profile. It looks like interest rates are as important (if not more) for small-cap than earnings at the moment. Thoughts/pushback?
Maybe I have misunderstood the Repo borrowing structure, but would you not only pay the Repo rate on amount borrowed? i.e. 4.25% on $970 thus realising a spread of $6.78 and a 22.6% return on net cash outlay?
Hi Mark! What do you think of the narrative that higher inflation expectations (let's say from 2 to 3 pct.) would be good to debt/GDP and boost EPS in nominal terms, hence justifying higher valuations? Thanks again for your videos!
Not sure about the evidence presented as it is at 48:00. Specifically when you made the TP/EFFR stationary and see large positive variations associated with low interest rates. The magnitude is coming from dividing by the near zero EFFR at the time which will dwarf any later readings as interest rates normalise. The unit calculated is actually a multiple. In 2010 are seeing a 20x higher TP% than the basically near 0% EFFR. When EFFR is 5% of course the TP of 0.5% looks very small at 0.10 multiple. I am following the logic but I think a different empirical approach may be needed - why not use the absolute TP number?
Dr. Mark, Do you have any refresher videos that summarizes all the data you look at weekly, the source where you get the data from, and a refresher on the concepts you cover in the weekly videos?
Hello Dr. Meldrum. What would you do to find a good entry point to open a position if you are not using TA? Because valuation is just an expectation about the company's future value, not for timing. Would like to hear your opinion on this. Thank you, sir.
Dr Mark, is there any easy straight forward way to convert ZB/ZN into % yields? I'd look at TLT but the price there is in 80s. Also, how should we think about relationship between TNX, DXY and SPY? If dollar is going up, ideally market should go down but it doesnt happen like that in real life.
Hi Mark, I’m curious to hear your thoughts on the Norwegian economy, particularly the NOK. It’s been a tough few years, and I struggle to see any significant improvements given how shortsightedly the country seems to be run, vide bloated public sector, how unproductive and weak the economy is when crude oil and gas are excluded. Not to mention the never ending streak of increasing taxation. Thank you!
Mark, with the corporate bond spreads so tight, is there opportunity to short IG bonds while long the UST. If something does break with these elevated capital rates spreads on IG corporate bond would widen.
was thinking about something similar just with HY bonds, think they Spread on them would increase faster, the only issue is I cant find duration matching HY ETFs
Hello Dr. What are the implications of the fires in LA from a complexity theory lens? Are there broader downstream impacts on the availability and pricing of insurance in the US and would that impact housing prices overall? I could see a situation where housing in certain parts of the US would be uninsurable and prices would fall and that impact MBS pricing overall.
Fantastic video! I really learned a lot. Could you elaborate on why you would need to divide the term premium of t he 10Y bond by the effective federal funds rate ? As the rolldown yield is not dependant on the level of the yield curve I would expect the ffr not to have a large impact on the term premium. I'd greatly appreciate it, thank you!!
Professor, I had a little longer, two par questions regarding Applied Series Sector Studies. 1) Do you think there is a value on reading equity research reports as an addition to Financial Modeling series to understand further industry practices and financial models? If yes, do you think research reports by Goldman Sachs, JP Morgan and other top tier banks have good quality research and forecasts? 2) As part of Sector Studies, Top Down section, have you ever thought about making video on macroeconomic forecasts on inflation, currencies, interest rates or other key macroeconomic indicators on a particular economy like the US? I understand most of those forecasts indeed likely to be following random walks, but I thought that would be interesting to see and learn those items from analyst perspective.
Hi Mark, could you please explain interest rate parity and why a currency with a higher interest rate typically implies a lower forward exchange rate? However, in reality, countries with higher interest rates often have stronger currency values. How can these two concepts be reconciled?
Hey Mark, what are your thoughts on going long on EIX? One of biggest regulated electricity providers in the US currently down big because of California fires. They haven’t cut their dividend in 20+ years, over 5% div yield now, has exposure to duration and trailing earnings yield is also near 6% now. Wild card would be how much they get fined for the fires but considering they have been fined before and there isn’t really an alternative to them, do you think that this could be an attractive long term play with decent income while they recover?
If I were doing a financial model for a gold miner would I set the discount rate in real terms? I figure that since the models revenues are derived in real terms (ounces of gold produced) I should set the discount rate in real terms? Is this the right thought process?
Around 19min in, you mentioned that consumer debt is priced mostly at capital market rates, not money market rates. Could you explain this further? I would have thought intuitively that money market duration more closely reflects the shorter duration of consumer debt (credit cards, auto loans and personal loans). Whereas 10-Y yields are more relevant for longer duration consumer debt like mortgages and maybe longer term student loans.
How is the forward yield for TLT calculated? I thought I've heard you say that it generates X amount of yield but how do you know what the number is since it can change depending on how the fund is configured and the underlyings are rolled?
When I compare the income yield component of fixed income ETFs, should I primarily be comparing the ttm div yield or the YTM? I noticed many ETFs like TLT and LQD have a pretty big difference between their dividend yield and ytm. Is the ytm more forward looking (considering income from future interest payments and principal repayment) while the ttm dividend yield can only represent the one-year historical yield? Both TLT and LQD have a higher YTM than ttm DY, is this because bonds maturing in the ETF are being rolled over with higher-yielding bonds? Does this mean that the ttm dividend yield going forward should rise to the ETFs YTM? (assuming, of course, that yield curve rates are static)
With the dividend yield on TLT, potential (and likely) future price appreciation, and the ability to sell covered calls, returns on TLT look very good. Do you think the current price levels of TLT justify buying on margin assuming your margin rate is 10% or less? While you could do a long-term risk reversal to leverage yourself without generating margin interest, you would not earn monthly dividends or have the ability to sell covered calls with less than 45 DTE
How do you explain this significant increase in interest rates across so many countries? It can’t simply be due to the growth of post-pandemic debt (this explanation might apply to many countries, but not to others: for example, rising interest rates in Switzerland, a country with a completely controlled public debt). Could you please elaborate? Thank you!
Do you have a revised price target for TLT for end of year. Using this current low price as a factor with the modified duration of the etf, you get a lower price (than you previously estimated) for the same number of rate cuts?
Am I missing something? Is there any reason to consider corporate bonds at all right now? Even the riskiest are lower yield than Treasuries. Also, even the new issued bonds/warrants over the last year haven’t been even close. How do they get anyone to buy? Unless it’s some hedge? Ive only been investing myself for about 4 years, prior to that it was just 401k/Pension and some physical gold.
Hi Dr. Mark, With the recent US sanctions on Russia and OPEC+ planning to ease production cuts, how do you think these developments will impact inflation, central bank policies, and the broader oil market in the coming months? Of course, you can’t predict the future, but I’d love to hear your thoughts. Thanks.
Hi Mark, could you chat about the possibility of the Fed pivoting again and hiking rates to send a message to the market? They would of course have to admit to being wrong but that swallowing their pride would be a better option than allowing inflation to shoot back up. I'm sure they feel their initial 50bps cut was 25bps to high anyways...
Hello Dr. Mark, Given the current high-yield environment and rising debt-to-GDP ratios, I’m exploring the feasibility and implications of introducing callable government bonds as part of sovereign debt management strategies for my master's thesis. I’m particularly curious about whether such instruments could bring innovation to sovereign financing. If you were in the government’s position, what types of bonds would you consider issuing, and what features would you incorporate? How would you structure these instruments to optimize debt sustainability and market reception? I would greatly appreciate your suggestions or advice on this topic.
Mark, i have an issue buying the Applied Series, its constantly declining my card for no reason. Is this something that is happening on your side and is a common problem? I wrote through the contact mail, but no response so far (which is okay, i wrote on Friday) but im a bit concerned about the 15th Jan cutoff date.
It seems like the perception in the bond market could have been that we were in a late cycle top with recession imminent. However, with supply coming back online and the introduction of AI and increased productivity in the US, Yields are moving toward early stage cycle pricing. A question: if yields are Time Value + Term Premium + Recession Discount, wouldn't part of the repricing be the shift in the forecast of the Money Market rate? (e.g. market pricing in 4 cuts in 2025, down to 2, and now 1)
Do you believe that the passive investment bubble in ETFs creates incentives for companies to focus on growing in size, regardless of profitability? e.g pursuing M&As without considering synergies and creating larger conglomerates, as passive investing favors mega-cap companies (valuation agnostic)?
Excellent Update as always! I am in the Duration trade for a while now and since I was short TLT puts my position dollar delta got too high now. I am still very convinved about this trade but I need to lower my duration exposure. I am planning to roll my positions but dont want to close them. To reduce my exposure in the short term I will be continuing selling short dated calls, when the premium is right. I was thinking about another idea with Credit Spreads that low I would like to reduce my overall duration by selling calls/buying puts on High Yield Bonds ETFs (E.g. HYG or JNK). This would lower my duration (Position needs to be adjusted for difference in TLT dur. 16 vs. JNK 3.25) and give me an oppurtunity to profit of credit spread expansion. Is there another way to express this view for retail investors as I am not too happy about the differnce in Duration between TLT and JNK.
Would appreciate some insight on what’s going on in the UK. Owner occupiers housing costs are the largest driver of the core inflation metric - outside of this inflation is broadly decelerating and the recent budget is already having a negative impact on business sentiment. Yes the fiscal stimulus coming down the line will play a part but near term it seems hard to see yields staying above 5%. Do you think the BoE will stick to its current trajectory?
Treasuries have essentially zero credit risk because the US govt always pays back its debts. That's why short-term Treasury rates are considered the risk-free rate.
Hi @@Chessmapling, thanks for your reply. Could it be that is not anymore the case? Like during the debt crisis in Italy. Especially given the growing public debt to gdp ratios in the US
@ Not all countries have zero credit risk, this is an assumption unique to the US because it has never defaulted on its debt. The deficit could theoretically add to credit risk if it becomes big enough and causes a default, but that possibility is pretty remote for the US
If the 10 year yield is almost 5% and money market rates are high, because the fed hasn’t cut rates enough. then if the fed continue to cut rates at a fast pace will the 10 year yield increase even more? Or does the fed cutting rates in the present moment, not affect the 10 year yield?
Related to the YC carry trade, can you please explain how financing in the Repo market works? My understanding is that theoretically, you borrow at the 1-month reverse repo rate at 4.25%, so you borrow $1,000 and pay back $1,042.5 in one month (assuming no costs), then refinance the next month at the reverse repo rate at the time and so on, which gives you the capital to work which offsets the capital used for the 10-year purchase. Is that right? How can a hedge fund or investor practically borrow at the 1-month reverse repo rate, is it done with some security through a broker? Why not a 2-month or 3-month?
Thanks Dr. Mark. Could a tolerant administration/FED on inflation be a scenario that goes against your 2 theories where yield go down in both? So supposedly they allow a 3-5% inflation for the next 3-4 of years in order to inflate the debt away? That wouldn't even cause a recession as companies are also getting more nominal dollars and kind of inflating their own debt away. So, could that be a plausible scenario? And could this be a reason why long term yields remain stubbornly high?
Wouldn't that have to be perfectly maneuvered to not cause some kind of debt spiral? That would raise the long term rates higher and with the amount of debt that has to get rolled over on top of the ~2T deficit would cause more and more of the budget being spent on interest. That means we have to cut spending massively while we have these higher rates to pay back the interest or issue more debt to pay back the interest rates thus worsening the problem. How could you get around that and not cause some kind of recession?
Something is going on because the RUclips algorithm randomly suggested this... among other "recession like" videos. Reminds me of the start of 2020 when everyone said it's a good time to sell because the market is gonna tank😁
Hi, Mark, Thank you, as always, for your detailed analyses. Regarding your hypothesis that we live in a deflationary world due to the effects of technology on productivity, aren’t you overlooking the impact of globalization? As global manufacturing shifted to cheaper countries, the cost of goods was driven down, contributing to the low inflation we saw until 2022. If globalization's impact has been more dominant than that of technology, wouldn't increased political tension among global trade superpowers lead to higher inflation, potentially offsetting the deflationary effects of tech-driven productivity? Moreover, while technology can indeed enhance productivity, AI has yet to deliver the substantial productivity gains we anticipate (e.g., through automation and robotics). If a leader like Trump returns with a more nationalistic rhetoric-a trend we’re observing globally-and trade is disrupted due to increased animosity and tariffs, wouldn't we likely experience more persistent inflation until significant tech-driven productivity improvements are realized? (In which case it would be better to be long on TIPS rather thank 10-year bonds, as the yield on the 10-year TIPS is also at historic highs).
In CFA we learned that a higher real trend growth results in a higher real interest rate. Considering this why are you in TLT if you believe AI will raise trend growth and lower inflation? Somewhat of an offset between higher real gdp growth and lower inflation so where do nominal yields go?
It seems your FRED graphs don’t extend far enough to include the 1995 period, which is a key reference point for many making this analogy. The prevailing narrative suggests we’re in a 1997-1998-like environment, where the rate-cutting cycle was reversed, and the Fed resumed hiking rates, leading to a major collapse about a year later. If we truly are in a similar scenario, long-duration assets might face one or two challenging years ahead.
Idk about your comment on hot cpi, everything that is yield involved like tlt, commodity stocks etc etc are down way to much and oversold to bad a bit hard to crash them more when you have yield stocks down 30% in a month basically sitting at massively oversold areas, if this was the case they would have ran it up dec and start of year not tank it, just my opinion
Is the creation of a DCF model worth the time and effort given all of the assumptions needed to be made? Can one make an educated investment on a company based on industry fundamentals and multiples as opposed to spending much time making a model.
Consumer front running tariffs?? I doubt it. Most are in day to day survival. What will be impacted is discretionary for most. Goodwill we likely see a bump in business.
In your overview of bond yield around the world you skipped over the Russian bonds, is there any reason to it? What's your opinion on Russian duration for those who can trade it?
Lamb Weston is in a pretty big mess. Do you think they can get out of it and if it's still an attractive investment? It concerns me how many issues they're facing at every level, micro, sector, macro, etc.
Dr. Mark, would the LT yield not be aligned with the idea that currency all over the world might be going through a period of devaluation and the term premium is therefore higher to compensate for the risk of subsequent inflation necessary to pay back the debt accumulated by countries in the recent years?
My thinking is on similar lines. I feel that term premium is to compensate for the so called “new norm” for a few years where the inflation and the fed funds rates are going to stay right about where they are right now. The only thing I don’t understand is what happens to issuance of new debt or refinance of debt at this higher level.
This is good information, but you need to make a TLDR, if it takes 1 hour to explain something you're not explaining it well enough or you're over presenting information. Should be 20-30 minute video max, and the key points should be quickly explained. Distill and Concentrate your information, you will draw larger audience. Nice and in depth analysis, but man is this long to sit through. 55 miuntes is where he actually explains the title of the video for those impatient busy people lol.
Thank you Mark. It's great to refresh the fixed income components. What considerations should we keep in mind when selecting an underlying to hedge Beta for a portfolio using options? Do you have a preference between the index or a liquid ETF?
![Seungmin "그렇게, 천천히, 우리(As we are)" | [Stray Kids : SKZ-PLAYER]](http://i.ytimg.com/vi/kAzmhLHePqU/mqdefault.jpg)
Your insights on inflation dynamics and bond market flows are captivating, especially the front-running part, You re the only one to mention it.
A teacher with real-world experience. it does not get any better than this
"Real life will be your exam" .. words to live by!
YT algorithm finally pushing your video again? Been subbed 2+ years, but the algorithm at some point last year just stopped recommending your content on my page. Guess this is my sign to move funds out of the money market and into TLT/BLV after CPI on Wednesday.
your mistake is not watching every week religuously, cause my feed has it at the top every Sunday!
Same, I have to go out of my way to search for mark's stuff. Showed up in my feed today
that's what happens when you buy subscribers. the algo will punish you, forever
Pushed to me and I'm not even subbed. Edit: well I wasnt subbed ..
Dr. Meldrum. great information. you identified the one thing I haven't heard anywhere else, that is front running. I worked in the logistic field in Asia, prior to moving back. And, I can tell you the last two months there has been considerable front running...
@41:15 how did you compute the denominator of the spread, I mean what is the exact computation to get the termp premium of the 10y zero coupon bond? Perhaps 10y zc - 1y zc I was thinking, would appreciate a clarification thanks, very instructive video
I really appreciate these hour long market outlook videos 🙏🏻
Detailed and insightful 🤌🏻
Thank you Prof. Meldrum
Love this, love your channel, love your speed run of completed videos at the end. What an inspiring journey 🙏 Looking forward to seeing what you make next!
Thanks Dr. M.
Any chance for an Applied Level group / forum to exchange ideas and communicate with like-minded, or at the best similarly-interested(/engaged), individuals?
Slack or similar?
Unrelated to CFA.
Interesting thought. Ideas?
@@MarkMeldrum New and different perspectives from people who have committed to the AL - which in my mind is a subset of the online finance discussions, who might be of higher quality and have a more homogenous work-learn-ethic. Currently, RUclips comments are very interesting but with limited interaction and "community building".
Would love to pick the brain of fellow AL-Members more. Unrelated to CFA because of the standards violations in similar groups - but indirectly a place where it will mostly be candidates/members. I think it could be executed in cool ways! :)
that would be cool - i think circle is a good solution for that - am member of some communities that uses it.
A simple discord/slack server seems effective
i love this. if you need a discord mod i volunteer :D
How can you determine how much is attributed to the term premium and how much to the recession premium?
Truly don’t think there’s a better finance yt
Hello Mark,
I’m not sure if there’s a section about preferred stocks in the Applied Series-I couldn’t find one myself. However, I would love to hear your thoughts on them, even if they’re not among your favorite financial instruments. Understanding why you might not favor them would still be incredibly valuable to me.
I’m particularly curious about your perspective on preferred stocks. If you ever consider making a detailed video on this topic someday, I’d be thrilled to watch it.
Thank you in advance for your insights!
49:11 so the fed is cutting but the market expect the bond price is not getting higher, could it because there are some other more attractive markets out there?
The equity rally we have seen over the past two years is mega-cap-driven. Mega-cap is not sensitive to interest rate changes due to its cash piles and ability to raise cheap debt even during elevated money market rates. This means that small-cap is the place to be if you think that -28.5 bps of cuts in 2025 is way too low from an equity size point of view. This is further solidified in my mind after seeing small-caps refinancing early 2020s debt up to 650 bps higher during 2024. The risk is that higher for longer interest rates (until late 2026-27 when a lot of debt matures) will crush them. Small-cap fundamentals also look more appealing which improves the risk/return profile. It looks like interest rates are as important (if not more) for small-cap than earnings at the moment. Thoughts/pushback?
I thought so too.....finally went in on small cap index fund that is down 12% in two weeks. This market is just idiotic at this point.
@@jc7887 SC is high beta
Maybe I have misunderstood the Repo borrowing structure, but would you not only pay the Repo rate on amount borrowed? i.e. 4.25% on $970 thus realising a spread of $6.78 and a 22.6% return on net cash outlay?
Hi Mark! What do you think of the narrative that higher inflation expectations (let's say from 2 to 3 pct.) would be good to debt/GDP and boost EPS in nominal terms, hence justifying higher valuations? Thanks again for your videos!
Not sure about the evidence presented as it is at 48:00. Specifically when you made the TP/EFFR stationary and see large positive variations associated with low interest rates. The magnitude is coming from dividing by the near zero EFFR at the time which will dwarf any later readings as interest rates normalise. The unit calculated is actually a multiple. In 2010 are seeing a 20x higher TP% than the basically near 0% EFFR. When EFFR is 5% of course the TP of 0.5% looks very small at 0.10 multiple. I am following the logic but I think a different empirical approach may be needed - why not use the absolute TP number?
Dr. Mark, Do you have any refresher videos that summarizes all the data you look at weekly, the source where you get the data from, and a refresher on the concepts you cover in the weekly videos?
Search my channel for Understanding the Market Outlook
Time stamps for me:
51:00 carry trade
1:03:00
Excellent presentation. Subscribed.
Masterpiece
Mark, have you released the Bitcoin Miner video yet?
I have. Riot 10q walkthrough tomorrow, followed by MARA.
FYI - The Bitcoin video is under Information Technology Sector
Hello Dr. Meldrum. What would you do to find a good entry point to open a position if you are not using TA? Because valuation is just an expectation about the company's future value, not for timing. Would like to hear your opinion on this. Thank you, sir.
Appreciate the analysis Mark. Would you consider a scenario of potential hikes?
Dr Mark, is there any easy straight forward way to convert ZB/ZN into % yields? I'd look at TLT but the price there is in 80s.
Also, how should we think about relationship between TNX, DXY and SPY? If dollar is going up, ideally market should go down but it doesnt happen like that in real life.
Hey Mark, is there a premium version of these types of reports in the Applied level? or something of the sort.
Hi Mark why did you use the 3 mos bill instead of the SOFR? Thanks
Hi Mark,
I’m curious to hear your thoughts on the Norwegian economy, particularly the NOK.
It’s been a tough few years, and I struggle to see any significant improvements given how shortsightedly the country seems to be run, vide bloated public sector, how unproductive and weak the economy is when crude oil and gas are excluded. Not to mention the never ending streak of increasing taxation.
Thank you!
Hello Doctor, any reason to use the 3 month specifically as oppose to the 1, 2 or 4 month t bill?
Just curious, where did the percentages come from under the OAS spreads?
Is the term premium apart of the time value of money component of a bond or the spread?
Mark, with the corporate bond spreads so tight, is there opportunity to short IG bonds while long the UST. If something does break with these elevated capital rates spreads on IG corporate bond would widen.
was thinking about something similar just with HY bonds, think they Spread on them would increase faster, the only issue is I cant find duration matching HY ETFs
How do you get the cycle high numbers that you use on the nomial par rate curve?
Hello Dr. What are the implications of the fires in LA from a complexity theory lens? Are there broader downstream impacts on the availability and pricing of insurance in the US and would that impact housing prices overall? I could see a situation where housing in certain parts of the US would be uninsurable and prices would fall and that impact MBS pricing overall.
Hi Dr Meldrum, how do you assess the current U.S. sovereign bond ratings in light of ongoing fiscal challenges and policy uncertainties?
Fantastic video! I really learned a lot.
Could you elaborate on why you would need to divide the term premium of t he 10Y bond by the effective federal funds rate ? As the rolldown yield is not dependant on the level of the yield curve I would expect the ffr not to have a large impact on the term premium. I'd greatly appreciate it, thank you!!
one of the best❤❤❤❤🎉🎉🎉🎉
Professor, I had a little longer, two par questions regarding Applied Series Sector Studies.
1) Do you think there is a value on reading equity research reports as an addition to Financial Modeling series to understand further industry practices and financial models? If yes, do you think research reports by Goldman Sachs, JP Morgan and other top tier banks have good quality research and forecasts?
2) As part of Sector Studies, Top Down section, have you ever thought about making video on macroeconomic forecasts on inflation, currencies, interest rates or other key macroeconomic indicators on a particular economy like the US? I understand most of those forecasts indeed likely to be following random walks, but I thought that would be interesting to see and learn those items from analyst perspective.
How often do you plan to do the live q&a's?
Hi Mark, could you please explain interest rate parity and why a currency with a higher interest rate typically implies a lower forward exchange rate? However, in reality, countries with higher interest rates often have stronger currency values. How can these two concepts be reconciled?
Hey Mark, what are your thoughts on going long on EIX? One of biggest regulated electricity providers in the US currently down big because of California fires.
They haven’t cut their dividend in 20+ years, over 5% div yield now, has exposure to duration and trailing earnings yield is also near 6% now.
Wild card would be how much they get fined for the fires but considering they have been fined before and there isn’t really an alternative to them, do you think that this could be an attractive long term play with decent income while they recover?
If I were doing a financial model for a gold miner would I set the discount rate in real terms? I figure that since the models revenues are derived in real terms (ounces of gold produced) I should set the discount rate in real terms? Is this the right thought process?
What are your thoughts on selling call spread or calls on ITB given Lennar is the second largest holding behind DR Horton
Around 19min in, you mentioned that consumer debt is priced mostly at capital market rates, not money market rates. Could you explain this further? I would have thought intuitively that money market duration more closely reflects the shorter duration of consumer debt (credit cards, auto loans and personal loans). Whereas 10-Y yields are more relevant for longer duration consumer debt like mortgages and maybe longer term student loans.
How is the forward yield for TLT calculated? I thought I've heard you say that it generates X amount of yield but how do you know what the number is since it can change depending on how the fund is configured and the underlyings are rolled?
When I compare the income yield component of fixed income ETFs, should I primarily be comparing the ttm div yield or the YTM? I noticed many ETFs like TLT and LQD have a pretty big difference between their dividend yield and ytm. Is the ytm more forward looking (considering income from future interest payments and principal repayment) while the ttm dividend yield can only represent the one-year historical yield? Both TLT and LQD have a higher YTM than ttm DY, is this because bonds maturing in the ETF are being rolled over with higher-yielding bonds? Does this mean that the ttm dividend yield going forward should rise to the ETFs YTM? (assuming, of course, that yield curve rates are static)
With the dividend yield on TLT, potential (and likely) future price appreciation, and the ability to sell covered calls, returns on TLT look very good. Do you think the current price levels of TLT justify buying on margin assuming your margin rate is 10% or less? While you could do a long-term risk reversal to leverage yourself without generating margin interest, you would not earn monthly dividends or have the ability to sell covered calls with less than 45 DTE
How do you explain this significant increase in interest rates across so many countries? It can’t simply be due to the growth of post-pandemic debt (this explanation might apply to many countries, but not to others: for example, rising interest rates in Switzerland, a country with a completely controlled public debt). Could you please elaborate? Thank you!
Do you have a revised price target for TLT for end of year. Using this current low price as a factor with the modified duration of the etf, you get a lower price (than you previously estimated) for the same number of rate cuts?
By pushing term premium higher, is the market saying they believe the 4% interest rate is not restrictive but rather just a neutral rate?
Am I missing something? Is there any reason to consider corporate bonds at all right now? Even the riskiest are lower yield than Treasuries. Also, even the new issued bonds/warrants over the last year haven’t been even close. How do they get anyone to buy? Unless it’s some hedge? Ive only been investing myself for about 4 years, prior to that it was just 401k/Pension and some physical gold.
Hi Dr. Mark,
With the recent US sanctions on Russia and OPEC+ planning to ease production cuts, how do you think these developments will impact inflation, central bank policies, and the broader oil market in the coming months? Of course, you can’t predict the future, but I’d love to hear your thoughts. Thanks.
Hi Mark, could you chat about the possibility of the Fed pivoting again and hiking rates to send a message to the market? They would of course have to admit to being wrong but that swallowing their pride would be a better option than allowing inflation to shoot back up. I'm sure they feel their initial 50bps cut was 25bps to high anyways...
Hello Dr. Mark,
Given the current high-yield environment and rising debt-to-GDP ratios, I’m exploring the feasibility and implications of introducing callable government bonds as part of sovereign debt management strategies for my master's thesis. I’m particularly curious about whether such instruments could bring innovation to sovereign financing.
If you were in the government’s position, what types of bonds would you consider issuing, and what features would you incorporate? How would you structure these instruments to optimize debt sustainability and market reception?
I would greatly appreciate your suggestions or advice on this topic.
Mark, i have an issue buying the Applied Series, its constantly declining my card for no reason. Is this something that is happening on your side and is a common problem? I wrote through the contact mail, but no response so far (which is okay, i wrote on Friday) but im a bit concerned about the 15th Jan cutoff date.
Someone should respond Monday. The 15th may be pushed to the 16-17th due to extra code needed. If you get no response, e-mail me on Tuesday.
@@MarkMeldrumthank you!
What are your on the latest memo from Howard Marks?
Can you share names of podcasts for economy/finance that you regularly listen you to?
It seems like the perception in the bond market could have been that we were in a late cycle top with recession imminent. However, with supply coming back online and the introduction of AI and increased productivity in the US, Yields are moving toward early stage cycle pricing. A question: if yields are Time Value + Term Premium + Recession Discount, wouldn't part of the repricing be the shift in the forecast of the Money Market rate? (e.g. market pricing in 4 cuts in 2025, down to 2, and now 1)
Do you believe that the passive investment bubble in ETFs creates incentives for companies to focus on growing in size, regardless of profitability? e.g pursuing M&As without considering synergies and creating larger conglomerates, as passive investing favors mega-cap companies (valuation agnostic)?
Excellent Update as always!
I am in the Duration trade for a while now and since I was short TLT puts my position dollar delta got too high now. I am still very convinved about this trade but I need to lower my duration exposure. I am planning to roll my positions but dont want to close them. To reduce my exposure in the short term I will be continuing selling short dated calls, when the premium is right.
I was thinking about another idea with Credit Spreads that low I would like to reduce my overall duration by selling calls/buying puts on High Yield Bonds ETFs (E.g. HYG or JNK). This would lower my duration (Position needs to be adjusted for difference in TLT dur. 16 vs. JNK 3.25) and give me an oppurtunity to profit of credit spread expansion.
Is there another way to express this view for retail investors as I am not too happy about the differnce in Duration between TLT and JNK.
How do you think about how much duration to take? The US Agg is at about 6 years, TLT has about 16 years, EDV goes to 24 years.
Would appreciate some insight on what’s going on in the UK. Owner occupiers housing costs are the largest driver of the core inflation metric - outside of this inflation is broadly decelerating and the recent budget is already having a negative impact on business sentiment. Yes the fiscal stimulus coming down the line will play a part but near term it seems hard to see yields staying above 5%. Do you think the BoE will stick to its current trajectory?
Hi doc, are you still in Costa Rica or did you move back to Canada? If I may ask
Hi Mark, is there any Credit Risk added on the 10 years Treasury Yield? Is it possible that it is partially contributing to those high levels?
Treasuries have essentially zero credit risk because the US govt always pays back its debts. That's why short-term Treasury rates are considered the risk-free rate.
Hi @@Chessmapling, thanks for your reply. Could it be that is not anymore the case? Like during the debt crisis in Italy. Especially given the growing public debt to gdp ratios in the US
@ Not all countries have zero credit risk, this is an assumption unique to the US because it has never defaulted on its debt. The deficit could theoretically add to credit risk if it becomes big enough and causes a default, but that possibility is pretty remote for the US
If the 10 year yield is almost 5% and money market rates are high, because the fed hasn’t cut rates enough. then if the fed continue to cut rates at a fast pace will the 10 year yield increase even more?
Or does the fed cutting rates in the present moment, not affect the 10 year yield?
Related to the YC carry trade, can you please explain how financing in the Repo market works? My understanding is that theoretically, you borrow at the 1-month reverse repo rate at 4.25%, so you borrow $1,000 and pay back $1,042.5 in one month (assuming no costs), then refinance the next month at the reverse repo rate at the time and so on, which gives you the capital to work which offsets the capital used for the 10-year purchase. Is that right?
How can a hedge fund or investor practically borrow at the 1-month reverse repo rate, is it done with some security through a broker? Why not a 2-month or 3-month?
Thanks Dr. Mark. Could a tolerant administration/FED on inflation be a scenario that goes against your 2 theories where yield go down in both? So supposedly they allow a 3-5% inflation for the next 3-4 of years in order to inflate the debt away? That wouldn't even cause a recession as companies are also getting more nominal dollars and kind of inflating their own debt away. So, could that be a plausible scenario? And could this be a reason why long term yields remain stubbornly high?
Wouldn't that have to be perfectly maneuvered to not cause some kind of debt spiral? That would raise the long term rates higher and with the amount of debt that has to get rolled over on top of the ~2T deficit would cause more and more of the budget being spent on interest. That means we have to cut spending massively while we have these higher rates to pay back the interest or issue more debt to pay back the interest rates thus worsening the problem. How could you get around that and not cause some kind of recession?
Something is going on because the RUclips algorithm randomly suggested this... among other "recession like" videos.
Reminds me of the start of 2020 when everyone said it's a good time to sell because the market is gonna tank😁
Inflation came back better than expected - does this change your view? Also, any thoughts on timing of the pullback in equities?
Hi, Mark, Thank you, as always, for your detailed analyses.
Regarding your hypothesis that we live in a deflationary world due to the effects of technology on productivity, aren’t you overlooking the impact of globalization? As global manufacturing shifted to cheaper countries, the cost of goods was driven down, contributing to the low inflation we saw until 2022.
If globalization's impact has been more dominant than that of technology, wouldn't increased political tension among global trade superpowers lead to higher inflation, potentially offsetting the deflationary effects of tech-driven productivity?
Moreover, while technology can indeed enhance productivity, AI has yet to deliver the substantial productivity gains we anticipate (e.g., through automation and robotics). If a leader like Trump returns with a more nationalistic rhetoric-a trend we’re observing globally-and trade is disrupted due to increased animosity and tariffs, wouldn't we likely experience more persistent inflation until significant tech-driven productivity improvements are realized?
(In which case it would be better to be long on TIPS rather thank 10-year bonds, as the yield on the 10-year TIPS is also at historic highs).
In CFA we learned that a higher real trend growth results in a higher real interest rate. Considering this why are you in TLT if you believe AI will raise trend growth and lower inflation? Somewhat of an offset between higher real gdp growth and lower inflation so where do nominal yields go?
It seems your FRED graphs don’t extend far enough to include the 1995 period, which is a key reference point for many making this analogy. The prevailing narrative suggests we’re in a 1997-1998-like environment, where the rate-cutting cycle was reversed, and the Fed resumed hiking rates, leading to a major collapse about a year later. If we truly are in a similar scenario, long-duration assets might face one or two challenging years ahead.
Trump is getting rates lowered. He's considering taking countries by force, he will have no problem forcing rates down and act as a saviour.
If the market is worried about tarriffs/inflation, why arent TIPS moving much?
Idk about your comment on hot cpi, everything that is yield involved like tlt, commodity stocks etc etc are down way to much and oversold to bad a bit hard to crash them more when you have yield stocks down 30% in a month basically sitting at massively oversold areas, if this was the case they would have ran it up dec and start of year not tank it, just my opinion
Is the creation of a DCF model worth the time and effort given all of the assumptions needed to be made? Can one make an educated investment on a company based on industry fundamentals and multiples as opposed to spending much time making a model.
Consumer front running tariffs?? I doubt it. Most are in day to day survival. What will be impacted is discretionary for most. Goodwill we likely see a bump in business.
Market went mad, now it’s the fun time
oh boy! more bond news! im totally normal right!
I'm selling ITM CCs on all my TLT and TLTW tomorrow
You must feel very stupid now
Nothing broke during the 2023 rate hike cycle, how can you be certain that this time around, things would break if yields remain elevated?
We did have the banks episode. Having high rates for a short period of time can be hedged more effectively than for a longer period of time.
What if rates just have to be higher? Maybe the fed released WAY too much money into the economy
Why does the high rates of the past, don’t translate into today’s economy?
In other words why do you think seeing the 10y at 6-7%+ is unlikely?
Could you please make the background black? It really helps the eyes. Thank you.
In your overview of bond yield around the world you skipped over the Russian bonds, is there any reason to it? What's your opinion on Russian duration for those who can trade it?
Lamb Weston is in a pretty big mess. Do you think they can get out of it and if it's still an attractive investment? It concerns me how many issues they're facing at every level, micro, sector, macro, etc.
25:35 Black background please.
How about, no?
Guessing the trends are due to China withdrawing from the debt markets
when you looked at the UK, you failed to mention brexit did this.
Dr. Mark, would the LT yield not be aligned with the idea that currency all over the world might be going through a period of devaluation and the term premium is therefore higher to compensate for the risk of subsequent inflation necessary to pay back the debt accumulated by countries in the recent years?
My thinking is on similar lines. I feel that term premium is to compensate for the so called “new norm” for a few years where the inflation and the fed funds rates are going to stay right about where they are right now. The only thing I don’t understand is what happens to issuance of new debt or refinance of debt at this higher level.
10 year was higher in 2024 and it was a nothingburger. Why the concern now?
This is good information, but you need to make a TLDR, if it takes 1 hour to explain something you're not explaining it well enough or you're over presenting information. Should be 20-30 minute video max, and the key points should be quickly explained. Distill and Concentrate your information, you will draw larger audience. Nice and in depth analysis, but man is this long to sit through. 55 miuntes is where he actually explains the title of the video for those impatient busy people lol.
The Fed only controls short term rates. The long term rates are set by the market and the market isn't happy with the Treasury Department
AI manufactured comments should be illegal. False approval
Mark, I’m a college student and inquired to support about any discounts you may offer. They said no such thing exists; could you confirm?
Thank you Mark. It's great to refresh the fixed income components.
What considerations should we keep in mind when selecting an underlying to hedge Beta for a portfolio using options? Do you have a preference between the index or a liquid ETF?