Barron’s – Worried About a Bear Market? Bonds Pose More Danger Than Stocks.

Worried About a Bear Market? Bonds Pose More Danger Than Stocks.

Excerpt from Barron’s – Nov. 22, 2019
By Randall W. Forsyth

Cumberland Advisors John Mousseau

Andrew Bary contended that Treasury bonds are now riskier than stocks in this space a few months ago. Moreover, given their low yields, which don’t have much room to fall further, bonds are unlikely to provide as strong a hedge to stock-market declines as in past cycles, argues Adam Levine, investment director for pensions at Aberdeen Standard Investments.

That doesn’t mean there is no place for bonds to hedge a portfolio—only that the bonds used for this purpose should be municipals, which also could provide some protection against higher taxes should Elizabeth Warren become the next president. That’s the view of John R. Mousseau, president, CEO, and director of fixed income at Cumberland Advisors.

In addition to her proposal for the ultrarich to kick in “two cents” in a wealth tax, the Massachusetts senator has called for higher marginal income-tax rates. What the top rate, now 37%, would be depends as much on the makeup of Congress as on who wins the White House. But Mousseau expects that it would be higher than the 39.6% under President Barack Obama. He also notes that there’s already a 3.8% Medicare tax on investment income for families whose yearly modified adjusted gross income exceeds $250,000.

All of which would make the tax-exempt income from munis more valuable, and thus boost these bonds’ prices.

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