Stocks Up; Bonds Flash Warning Signs
21 November 2021
The S&P 500 was up 6.9% for October with many companies reporting better earnings (or fewer losses) than expected, compounded by bouts of speculative fervor in some sectors. Valuations are stretched enough to convince even Morgan Stanley to advise investors to resist buying US stocks and Treasuries.
But it was bond markets that gave the strongest signal of trouble ahead. Bond traders forced up yields essentially daring to fight the Fed and other Central Banks who claim that the current 5% to 6% inflation is transitory. The respected market analyst El-Erian was more articulate saying "It is going to go down in history as one of the worst inflation calls by the Federal Reserve".
Yields on 2-year treasuries went from 0.27% to 0.50%. The auction of 30-year treasuries was the rockiest in a decade due to reduced liquidity in the world's most liquid market. The volatility created $1 bn of losses in the NY based macro fund Element Capital. Bond markets were volatile in Australia and Canada, and, in China, the country's largest developer saw its bond yields spike to 9.5% from 3.25% during October.
Evidence of speculation, volatility, and price dislocation are increasing. No one can predict how the 13-year ZIRP and QE experiments will end, but it is unlikely to end quietly or happily. Investors seeking a safe refuge in these uncertain times are placing increasing value on the genuine stability and diversification offered by Life Settlements.
LAST MONTH IN THE LIFE SETTLEMENT MARKETS - LS Markets Stable: Protests in Canada?
Most would consider the phrase "Canadian protest" to be a contradiction in terms, but there are exceptions to every rule and this one has important lessons for Life Settlements. Ontario, Canada's most populous Province, does not currently allow an insured to settle his or her policy. Warren Horowitz, a Canadian gentleman confined to a wheelchair due to MS, would like to sell his life insurance policy to fund a better lifestyle and more care for himself as he could do in the USA. Despite the Canadian weather, he has staged a daily protest in the wheelchair outside of the legislature over the past three weeks to get a meeting with the Premier of Ontario. The Government's reaction has been to rescind his pass to use the handicap-accessible restroom in the building, and the next closest one is 40 minutes away.
The proposed legislation is stalled. Coincidentally, the Ontario Minister of Finance overseeing the legislation used to be a senior executive of a leading Canadian Insurance company.
Some investors struggle with Life Settlement's connection to mortality; they may want to contemplate the case of Mr. Horowitz. LS investors are prepared to purchase the policy well above surrender value, provide liquidity when the insured needs it, and be part of the solution for a better life for the insured; LS investors are not the bad guys. It is other parties who are acting against the best interests of the insured.
Written By Tony Bremness
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