SHV

When a stimulus program moves money around, some people will have more and others will have less.The purchasing power of our dollars declines with inflation, so the cost of stimulus is spread widely across the population.Helping the economy is a false justification for a stimulus program.

For FY 2020, the total deficit came in at $3.1 trillion, a record shortfall, especially compared to a red ink total of $984.4 billion for FY 2019.It was the surge in spending that accounted for 98% of the increase in the overall deficit, as total outlays exploded by more than $2.1 trillion.Looking ahead, additional fiscal stimulus does seem likely in FY 2021: It's the exact timing and magnitude that are unknown.

As economic activity slows down the demand for the services of money follows suit.A fall in the prices of goods and services results in a decline in the demand for the medium of exchange.Once money enters a particular market, this means that more money is now paid for a product in that market.Contrary to commonly held beliefs, it is possible that changes in money supply and liquidity will move in different directions.

Bond bears have a new reason to hope as rising yields weigh on long Treasury prices, which have fallen below a key technical support level.Over the past week, long maturities for US government bonds led a broad decline in fixed income, based on a set of ETF proxies through October 21.The iShares 20+ Year Treasury Bond ETF has tumbled for five straight days.

In response to the global COVID-19 recession, central banks across the world unleashed synchronized monetary stimulus to backstop the economy.With the lack of inflation pressure, and higher tolerance for inflation overshoots, central banks globally are likely to keep interest rates low for a long time.Today’s low-interest rate environment creates some challenges for investors looking for adequate returns through bonds, but great opportunities for borrowers and equity investors.

Examine the possibility that a "blue wave" is not necessarily "growth-friendly" and how fixed-income investors should plan for such an outcome.A "blue wave" results in a potentially higher tax, an increased regulatory environment and a less "business-friendly" setting, which could ultimately result in slower economic growth.If the UST market does embrace "the other side of the trade," investors should take a more "strategic" approach to fixed-income asset allocation and be mindful of the current and prospective shape of the yield curve (relatively flat now, potentially steeper later).

Global economic growth has underwhelmed versus expectations generally since 2011.Lower than expected growth versus expectations has caused investors to chase growth at almost any price, and duration in their bond investments almost at any price.This crowded investment landscape is about to experience a wholesale change, with global growth outperforming expectations led by China and the United States.

Over the last few weeks, we have discussed much of what happens to the stock market both pre- and post-presidential elections.With no stimulus currently on the horizon and a resurgence of economic weakness, there is more than a reasonable risk we may see more disappointment in economic data ahead.We currently have more equity exposure than we are comfortable with.However, technically, there is no reason to reduce exposure as trends remain positive sharply, the sentiment remains clearly bullish, and volatility remains suppressed.We are still hedging portfolios by holding slightly higher levels of cash and adjusting the duration of the bond portfolio to mitigate drawdown risk.