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Stocks will significantly outperform bonds in the years ahead as investors get used to interest rates that will rise more than consensus expectations, according to an analysis from Goldman Sachs.
Goldman foresees the Federal Reserve raising rates in the third quarter of 2015 and taking its funds rate all the way to 4 percent eventually, about double the level predicted by many in the market, including bond manager Pimco, which foresees a short-term "neutral" level of half that.
"We forecast a dramatic divergence between stock and bond returns during the next several years," Goldman strategist David J. Kostin and others wrote in a note to clients.
Junk bonds have fallen about 3 percent since their peak in late June, and some traders expect the broader stock market, which traded flat since then, to follow suit—perhaps imminently.
"Equities are unlikely to rally in the midst of substantial a high-yield selloff," said one hedge-fund manager who focuses on the credit markets, referring to the junk bond market by its industry name. "There will be a correction at some point," he added, "whether it just started, or in the next six months."
Indeed, certain hedge-fund managers have spent recent months decrying what they see as an overzealous stock market, fueled by misguided easy-money policies in the U.S. and beyond.
Goldman Sachs is cutting off some hedge fund clients and even pulling cash from its own hedge funds as it looks to cope with tough new banking rules, according to a report.
The firm has let go some of its less-profitable clients, telling them it has to re-evaluate its businesses based on return on assets, rather than revenue generation, the Wall Street Journal reported. The company has redeemed cash from its largest internal fund as it looks to comply with rules regarding how it invests its money, and how much capital it keeps on hand.
Far from being alone, Goldman and rivals Bank of America and Deutsche Bank are in the same boat. Analyst Robert Sloan of S3 Partners told the Journal that the effort to comply with new regulations instituted after the financial crisis is "the most dramatic thing to happen" ever in the banking industry.
President Barack Obama may want to rethink his position on trickle-down economics.
An avowed opponent of the principle that espouses putting money in the hands of those at the top in the hopes that it "trickles down" to those at the bottom, the Obama economy has benefited from that very principle
The stock market has soared 140 percent in the time Obama has been in office, the beneficiary of long-standing monetary policy that has rewarded those who own financial assets like stocks and penalized those who opt for safer instruments like savings accounts and money markets.
Stock market gains have been a bragging point recently for the president, who has launched an aggressive effort in recent days to try to boost his party in the upcoming mid-term elections.
For Federal Reserve critics, lobbing the "behind the curve" charge has become the easiest to way to blast the central bank's ultra-easy monetary policy.
Inside the Fed, though, the charge has become something just short of a badge of honor, an indication that officials there are willing to tolerate being slow to move on interest rates as long as it boosts workers' economic conditions.
The "curve" charge itself has a sharp implication, namely that Chair Janet Yellen and her cohorts are ignoring mounting inflation pressures and ultimately will have their hand forced by an economy growing more rapidly than they give it credit. Moreover, the implication goes straight to the Fed's competence and whether it really is a capable steward or an overzealous money printer too willing to prop up bubbles.
Nonsense, said Pimco's Paul McCulley, who serves as the bond giant's chief economist and, suddenly, as a vocal defender of the central bank's policies.
In a report issued for clients earlier in the week, McCulley said "behind the curve" is exactly where the Fed wants to be—for now. The goal is to keep interest rates low not until unemployment falls below 6 percent or inflation eclipses 2 percent—the previously stated goals from the Open Market Committee for when it would begin to consider raising rates—but until consumer buying power gets considerably stronger.
Now that we've heard from more than three quarters of companies in this earnings season, there's a trend: Companies across industry groups—from food to technology to health care—are raising costs for the consumer.
Hershey, for instance, announced it's raising prices by an average of 8 percent across the majority of its portfolio in the U.S. Hershey makes chocolate and snacks that include Reese's, Kit Kat, Twizzlers and Ice Breakers gum and mints.
"Commodity spot prices for ingredients such as cocoa, dairy and nuts have increased meaningfully since the beginning of the year," a Hershey executive said in a statement.
Mars, the company behind M&Ms and Snickers, quickly followed, announcing a 7 percent increase in prices in North America for the first time since 2011.
It's not just chocolate.
At the end of the day, it's really all about the Fed for most investors.
Forget Ukraine, forget Israel—forget pretty much everything else, in fact. When it comes to what investors think will spoil the 6-year-old bull market, most point directly to the Federal Reserve.
"Everybody I talk to to, every new prospect and client, they think the same thing: Another crash is around the corner and they want to be prepared for it," said Keith Springer, who runs Springer Financial Advisory in Sacramento, California. "Everyone believes that ... the Fed has created this bubble, because that's what they've done for the last 25 years is create bubbles. And bubbles don't deflate—they burst."
That's some pretty apocalyptic talk considering how resilient stocks have been since the dark days of the financial crisis. Springer himself believes there's too much fear in the market.
Yet a survey released Thursday by New York-based brokerage ConvergEx helps confirm the sentiment.
The popular SALT Asia conference in October has hit a snag.
Originally scheduled for Oct. 21-24 at the posh Marina Bay Sands hotel in Singapore, the date conflicted with a significant Hindu holiday called Deepavali, also known as the "festival of lights." As a result, organizers of the SkyBridge Alternative Investing Conference decided to move the date to an unspecified time.
"Out of respect to the many who celebrate this important public and religious holiday in the region, SkyBridge Capital has decided to adhere to this request and postpone the Conference," the firm said in a statement posted on its web site.
With events in Las Vegas and Singapore, SALT is run by SkyBridge founder Anthony Scaramucci and features some of the biggest names in hedge funds, investing, politics and entertainment. The Vegas event included hedge fund titans David Tepper and Leon Cooperman, political leaders such as White House adviser Valerie Jarrett, and entertainment icons Kevin Spacey and Francis Ford Coppola.
The Singapore event's 2014 agenda is not yet available, but the conference last year hosted former Treasury Secretary Timothy Geithner as well as Marc Faber and Nassim Taleb from the investing world.
"Given our strong momentum surrounding the event, we are disappointed about the postponement but remain committed to SALT Asia and focused on our mission of having it serve as a premier thought leadership forum for balanced discussions and debates on macroeconomic trends, geopolitical events and alternative investment opportunities in the region," SkyBridge's statement said.
With Argentina poised to default Thursday on some $20 billion in bonds, here's a primer on what you should know.
Q: What is a sovereign default?
A: A sovereign default happens when a country fails to pay what it owes to its creditors—in this case, Argentina's expected inability to pay investors holding bonds that were issued prior to 2001, the year in which it entered a prior default on more than $80 billion of obligations.
Q: Why would Argentina default twice in 13 years? Hasn't it gotten its financial house in order since 2001?
A: Argentina's financial health has improved quite a bit since then. Latin America's third-largest economy operates without access to international capital markets and is experiencing gross domestic product growth of 3 percent. It also has about $30 billion in reserves—more than enough to pay all its bondholders.
Corporate America may have another tax-avoidance trick up its sleeve.
"Inversions" are already all the rage in boardrooms these days. Companies from Chiquita Brands to giant drugmaker AbbVie to potentially Walgreens are buying offshore companies, shifting their home addresses overseas and thus lowering their overall tax bills to Uncle Sam.
Executives argue they have no choice, given America has one of the highest corporate tax rates in the world (of up to 35 percent), to stay competitive globally. President Barack Obama calls it "wrong" and "unpatriotic," and last week he pushed Congress to halt the practice.
And now, just as the debate over that loophole is reaching a fever pitch, another one is emerging—what some are calling "outversions."
CNBC's Patti Domm and Jeff Cox discuss the jobs report and the current dilemma of long-term unemployment.
CNBC's Patti Domm and Jeff Cox discuss the recent GDP numbers and what factors have been affecting it.
Investors give and investors take away, and nowhere has that been more true lately than in value stocks.
The lack of volume in this market might make it hard for the rally to continue, says veteran trader Art Cashin.
The mid-term election will be a disappointment—but that's a good thing for Wall Street, says hedge-fund manager Todd Schoenberger.
Charles Schwab has lost a case against Morgan Stanley, accusing it of improperly recruiting brokers from a Schwab San Francisco branch.