Credit to Crypto: How I'm Positioning After the Rise of Risk

Risk assets had a great week last week, with broad stock market indexes up around 7%. Based on this action -- and on the busy, shortened week we have now with the many Fed talks and more data coming in -- I'll give my take on how to position on credit, crypto and other areas of investment. Giving Some Credit to Credit First, it turned out that turning neutral heading into the week was a good move. But, in hindsight, my concerns about crypto caused me to be less aggressive than I should have been. Having said that, credit products of all types had strong performances. These include investment grade products, as in the iShares Investment Grade Corporate Bond exchange-traded fund ; high yield, as in the iShares iBoxx High Yield Corporate Bond fund and the and the SPDR Bloomberg High Yield one ; leveraged loans, as in the Invesco Senior Loan ETF and the SPDR Blackstone Senior Loan ETF ; and municipal bond funds, as in the iShares National Muni Bond ETF . ETFs, at least, had strong inflows -- and that should show up in the mutual fund data this week. Closed-end municipal funds had a great week, too. Some of those that I track -- including several that I own -- rallied 6% to 10%, even outpacing equities. All this means I continue to like credit products, as we could see a potential chase for yield. It won't be as aggressive as anything we saw when the Fed was pumping liquidity into the economy and was extremely dovish, but there seems to be a realization that yields, and credit spreads, may have already peaked, creating a buying opportunity. For those of you who have lamented low yields, now is the time to add, rather than sell. I think the 10-year Treasury could get as high as 3% again, or trade as low as 2.5%, so we can nibble there, but I think credit products are better positioned and the closed-end funds have some room to further reduce the discount to net asset value. Buying Dips For the first time since almost the start of the year, I'm in a buy the dip mode. I want to see some of last week's froth come out of the market, which could happen for two main reasons. First, a lot of hedge funds and fast traders wanted to get long equities before the month's end. Large asset managers with monthly rebalancing between bonds and equities were scheduled to buy a lot of equities, but with last week's performance, equities have outperformed bonds, so very little needs to be done to rebalance from here. A lot of people may be positioned too bullishly for an event that won't happen. Second, the Fed may tamp down on this new dovish interpretation the markets make after the release of Fed meeting minutes last week. Federal Reserve Gov. Christopher Waller spoke Monday and seemed to be pushing back. Next, we get John C. Williams, president and chief executive of the Federal Reserve Bank of New York, and James Brian Bullard, of the St. Louis Fed, on Wednesday. Also, Loretta J. Mester, of the Cleveland Fed, and Lael Brainard, vice chair of the Fed's board of governors, speak later this week. Now, Fed Chief Jerome Powell has been asked to meet with President Joe Biden and Secretary of Treasury Janet Yellen. When he met with Biden in November, it seemed to solidify his transition from transitory to evil enemy on inflation. The Fed could make a serious effort to push back on the dovish interpretation, which is bad for markets. More data will land this week, and I believe we will see markets respond appropriately. Good news will be met with higher yields and higher stock prices and vice-versa. That would be healthy. My Take on This Wild Week Crypto should be watched, too, but it seems to have stabilized for now. I wouldn't buy crypto here -- and in fact I'd sell, if anything. But, the speculative digital currencies might not act as a drag on the disruptive stocks. A lot is going on, for sure. And, none of what is happening in the markets is made easier by these seemingly endless 3% intraday swings. But I think we can be patient and looking to add risk. I'm particularly focused on adding homebuilders, as in the SPDR S&P Homebuilders ETF and anything travel related. I still like the emerging markets, especially Mexico; I'm using iShares Latin America 40 ETF for that exposure. I am finally selling down my energy portfolio. I'm not particularly nervous, but it has been a strong run and time to seriously reduce exposure, for the moment.

Credit to Crypto: How I'm Positioning After the Rise of Risk

The broad stock market indexes shot up around 7% last week, and now we head into several Fed talks. Here's why I'm in a buy-the-dip mood, my views on credit exchange-traded funds and more.

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