What’s The Deal With Bonds

With the stock markets entering 2017 rallying into all-time highs, bonds have gotten very little attention. Or rather, they are just getting very negative attention. I really don’t like all the high-yield U.S. bonds and junk bonds that seems to get most of that attention. I think if you going to buy U.S. bonds, you have to look at Treasuries. For those that don’t know, buying a bond is basically lending money with the expectation that you will receive your money back at the end of some time period and receive interest payments while you wait. With the backing of the U.S. government, which I hope we can still rely on over these next 4 years, bonds have always been thought of as the safest investment an investor can make.

Taking a look at the $TLT as a proxy for all long-term Treasury bonds, we see that bond prices have risen dramatically in the aftermath of the 2008 financial crisis. Most recently, however, prices have taken a beating since the election of Donald Trump. Many screamed it was the end of bonds and the start of a new bearish cycle in the bond market.

tlt

I just don’t believe it. Looking long-term, bonds have simply corrected from all-time highs (in the $TLT). Prices have settled in the Fibonacci levels drawn off the entire rally in bond prices since the lows in 2004 (again, according to the $TLT). In fact, bond prices could certainly go lower from here… and still be in a correction. So I hesitate in calling the end of bonds as we know it. Rather, it could be just the beginning….of new life in bonds.

Nothing More Left in the Aussie

The Australian dollar set off the new year rallying pretty much across the board. Even after some consolidation, the Australian dollar attempted to push the Great British pound to new lows but failed just below the 1.6000 support level. Since that failed new low that put in a higher low than the previous low, the $GBPAUD has rallied over 400 pips to trade at 2-month highs.

GBPAUD DAILY CHART

The move to 1.6400 has ran up against resistance at the 38.2% Fibonacci level. Swing buyers at the lows may seek to book profits here, especially ahead of the weekend. But it is unlikely that this $GBPAUD rally exhausts here. Even if the GBP drops on the Article 50 trigger event next week, bids are very likely to step in on that dip. Additionally, the Reserve Bank of Australia (RBA) is concerned with slowing wages in its economy. This concern prevents the RBA from increasing interest rates despite a still-strong housing market. A weak Australian dollar could continue to fuel this rally right into the 1.6700 resistance level. I think that is the line in the sand for the $GBPAUD. There are former highs at that level as well as the 61.8% Fibonacci level. While I expect profit-taking at 1.6700, a break higher will signal that a larger reversal is in play for the $GBPAUD.

Should you bet against Oprah?

I was skeptical when $WTW, the Weight Watchers stock, surged early today after the company reported very optimistic projections for future growth. The cynic in me must always question a rally. I noticed that the market shrugged off the fact that Weight Watchers actually missed revenue expectations despite growing subscribers by 10%. However, after reading more about their newest member to the Board, I’ve come to respect the clout that Oprah may bring to win more subscribers.

Sure subscribers are up in the fourth quarter. It was the holiday season. But I can appreciate now, during after hours, that there should be another bump in this first quarter thanks to New Year’s resolutions. I’ve seen the new 2017 Oprah commercials. Guiding higher for the next report is a great seasonal play that may (or may not) play out for shareholders.

The next thing on my mind about this stock this morning was the insider risk posed by Oprah’s celebrity owning a piece of the company. Smaller investors should watch if Oprah exercises those options or not. That would be quite an increase in demand.  I actually thought Oprah might unload stock. But I was reminded by MarketWatch that Oprah just might acquire more stocks, not less.

…keep in mind that when the company disclosed in October 2015 that Winfrey bought about 6.4 million shares at $6.79 a share, the company also said it granted her options to buy another 3.5 million shares at an exercise price of $6.97.

So the insider risk actually leans favorable for smaller shareholders.

My conclusion this morning was to sell $WTW at $20 and be done with it. But if I think more like a trader, I have to ask if $WTW is still a good value now below $20. Will it return to $80? I don’t know. But can it return to $28? Let’s just say that I do believe Oprah could win the presidency.

WTW WEEKLY CHART