Six Weeks

On Fx (Krasting)


Monday, July 23rd, 2012

I’ve been running a short EURUSD for the past six weeks. I got in at 1.2650 on June 30, and doubled up on July 8 at 1.2260. I was delighted to see the Euro get cheap in Friday’s trading, but the market action forced a decision. I wrote some things down on a pad, thought about it a bit, and said, “Screw it”, and cut the whole position. Some of my thinking:

I hate trading FX at the end of July . The markets shut down with the approaching European August vacations. The last week of the month is about cleaning up positions, not putting new ones on. August is never a time to be involved, unless you have to.

There was something odd about the EURUSD trading Monday through Thursday. Tyler Durden, at Zero Hedge, made note of this.

The red arrows that Tyler drew bother me. This stinks of “official guidance”. It’s tough to make a buck at the FX casino, it’s tougher still when the tables are rigged.

In May and June the Swiss National Bank (SNB) bought CHF 110Bn worth of Euro’s. That’s a staggering amount. I’m convinced that the intervention was heavy in July as well. Reserves are headed up another CHF50Bn. I think these numbers still understate what is happening, as the SNB has been writing calls on the Franc.

In the course of just three months ¼ Trillion Euros have crossed into the Alps. This is unsustainable. At some point it will have to result in a messy blow up. But not necessarily in the month of August.

I don’t think the SNB is going to fold its cards just because they are under attack. If the SNB were to quit intervening, the EURCHF would be nearing par in a matter of days. The cost to the SNB would be CHF40Bn (15% of GDP).

Before taking a loss of this magnitude, the SNB, (with the blessings of the government), would implement a variety of exchange controls. I think this is a something that could come sooner than the market believes.

It is my understanding that there is significant macro hedge fund positioning in the EURCHF. I don’t believe that the SNB is going to simply write a monster check to some fat cats up in Greenwich. There will be (at least) one more chapter in this story.

Should there be something that makes people blink on the CHF, it could end up causing short positions in the EURUSD to get jumpy. I’d rather not be part of a jumpy crowd.

I’m worried about what Bernanke may do on August 1st. We could see something that brings the US negative short-term interest rates. (My thoughts on this). It’s very difficult for me to be a dollar bull. I’m much more comfortable playing the dollar from the short side.

The Euro weakness on Friday was related to a big selloff in Spanish bonds. The Spanish ten-year ended up at 7.27%. This means that a Spanish bailout is not far off and Italy is next in the crosshairs.

Really? I don’t think so. It’s not going to be that easy.

The Euro technocrats are not going to fold in August. They may be going down, but I fear more battles are in the offing first. SMP purchases of sovereign debt is likely next week.

Realized gains have been elusive for me this year.

Now that I don’t have a position to worry about, I’m worried about not having a position. I will be looking for an opportunity to re-load a short Euro exposure. Hopefully it will be at higher levels than Friday. Either way, I will act before September rolls in. The Euro is still toast.

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Are Europe’s Courts a Brake on Reform?


Saturday, July 14th, 2012

 

by Russ Koesterich, Chief Investment Strategist, iShares

A few weeks ago, the Wall Street Journal reported that a European courtruled that employees are not only entitled to long vacations–or at least long by American standards–but in the event they become ill while on vacation, they also get a “do-over.”

In other words, employers need to guarantee five or six weeks of vacation, and if employees get ill while taking time off, they can simply retake the vacation when they’re feeling better. While extending vacation time may be a good thing for an employee, it raises the costs for a company or for a government struggling to repay debt.

This relatively harmless ruling, easy to dismiss as silly, illustrates a broader European problem: even when governments try to reform, restrictive labor laws and sympathetic courts can be an obstacle if they impede growth. Though Europe’s politicians have made a reasonable, albeit slow, start to reform, Europe’s existing labor laws and courts are unlikely to help today’s austerity plans and efforts to end the eurozone crisis if they impede a pickup in Europe’s secular growth rate. Thanks to the courts and laws, even when politicians want to reform, they often can’t.

Recently, there was a similar (but arguably more serious) example in Portugal. As the Wall Street Journal reported over the weekend, a Portuguese court struck down a central element of that country’s austerity program. As part of its efforts to comply with the terms of its bailout package, between 2012 and 2014 the government had planned to eliminate the traditional summer and Christmas bonuses for public sector workers. While the ruling eliminating the pay cut will not impact the 2012 budget, it will force the government to adopt additional measures to reach its 2013 target of a deficit of no more than 3% of GDP.

Italy faces similar challenges in reforming its labor market, and, in the absence of necessary labor reforms, Italy is unlikely to increase its anemic growth rate. Unfortunately, what holds for Italy and Portugal is true for the broader Europe.

Europe is not alone in having courts that act as brakes on structural reform. The United States will arguably face similar challenges in coming years (the recent Supreme Court decision on healthcare could be considered the first salvo in this battle). However, the United States still enjoys the bond market’s confidence, i.e. it still has time. The same cannot be said of Europe. Without structural reform, Europe is unlikely to solve its sovereign debt or banking problems, and bond investors are likely to continue to lose confidence.

Ultimately, I believe the path to reform will continue to be slow and uneven, especially considering that several structural issues remain unresolved. That said, I believe a worsening eurozone crisis can be avoided if European politicians aggressively address their region’s problems.

In the meantime, I continue to advocate underweighting Italy and Spain, which look cheap for a reason. I do like some countries in more economically stable northern Europe and I especially like Germany, which has stronger economic fundamentals than its eurozone counterparts.

Investors can access the northern European countries I prefer through the iShares MSCI Germany Index Fund, (NYSEARCA: EWG), the iShares MSCI Netherlands Investable Market Index Fund (NYSEARCA: EWN), and the iShares MSCI Norway Capped Investable Market Index Fund (NYSEAMEX: ENOR).

Source: Bloomberg, The Wall Street Journal

Russ Koesterich, CFA is the iShares Global Chief Investment Strategist and a regular contributor to the iShares Blog. You can find more of his posts here.

The author is long EWG and EWN
In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Securities focusing on a single country may be subject to higher volatility.

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Individual Investors Laughing All the Way to the Bank (Bespoke)


Friday, May 11th, 2012

 

by Bespoke Investment Group

Individual investors are often ridiculed as being the last to get into the market and the last to get out.  However, looking at trends in bullish sentiment suggests that individual investors may not be the dopes that many institutional investors often classify them as.  In this week’s survey of bullish sentiment from the American Association of Individual Investors (AAII), bullish sentiment dropped from 35.4% down to 25.4%.  This puts bullish sentiment at the lowest level since September.

Looking at the chart below shows that bullish sentiment on the part of individual investors has been declining since February or about six weeks before the S&P 500 reached its peak.  If this was just a one-time event, we could probably chalk up the decline in bullish sentiment ahead of the market peak as a coincidence.  The reality, however, is that last year we saw the exact same pattern as bullish sentiment also declined ahead of the big drop in equities.  The fact that individual investors have shown such good timing twice in a row now suggests that they deserve more credit than many have been giving them credit for.  Perhaps they could even lend a hand to the Chief Investment Office of JP Morgan (JPM).

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Inflation Anxiety is Spooking Investors (Tucker)


Wednesday, May 2nd, 2012

 

by Matt Tucker, iShares

Investors are spooked. They are so spooked that they are buying an asset that currently has a negative yield. What is the culprit causing so much concern? Curiously, it’s inflation. Investors appear to be so concerned about inflation that they are seeking protection against it without much regard to the cost of that protection.

This phenomenon is playing out in the market for Treasury Inflation Protection Securities, or TIPS. The US Treasury auctions TIPS securities every six weeks. In the last few auctions, the demand for TIPS by investors has been oversubscribed by almost 3X.  All this demand for inflation protection has contributed to negative real yield level across the entire TIPS curve.

Why might investors be clamoring for inflation protection?

TIPS are the only financial asset that directly protects an investor’s principal from changes in realized inflation.  While real estate and commodities are indirect means of inflation protection, the principal on TIPS adjust with changes in the non-seasonally adjusted consumer price index. But current levels of volatility are making it difficult for businesses and investors to know if this is a risk they should hedge. The uncertainty regarding the direction and impact of inflation is at 30-year highs.  The chart below show the volatility of the CPI index over the past 50 years.

What is making this sudden increased demand for inflation protection so curious is that despite the rapid expansion of the money supply in the past four years, inflation has not gotten out of control. In fact a warmer winter caused deflation of 0.5% in the fourth quarter of last year as energy prices fell. While the money supply has increased as the Fed has injected liquidity, the weak economy and tight lending environment have not put upward pressure on prices. All this liquidity has not translated into current inflation.

For investors, having a strategic allocation to TIPS or the iShares Barclays TIPS Bond Fund (TIP) as part of an overall portfolio may be prudent. However, it might make sense to ask yourself what your view is on inflation before investing in TIPS. Negative real yields in this context may be viewed as the “cost” of realized inflation protection, so you should have a view on how long that cost will likely be incurred before the payoff in actual inflation occurs.

No matter what your view is on inflation, you can look at these signposts for keys to future inflation – bid-to-cover ratio at TIPS auctions, flows into TIPS investments like ETFs, monthly changes in the CPI and market expectations of future inflation through “breakeven inflation” levels (the difference between nominal and real rates). Hopefully these clues will give you some guidance on when to add inflation protection to your portfolio.

 

 

Bonds and bond funds will decrease in value as interest rates rise. TIPS can provide investors a hedge against inflation, as the inflation adjustment feature helps preserve the purchasing power of the investment. Because of this inflation adjustment feature, inflation protected bonds typically have lower yields than conventional fixed rate bonds and will likely decline in price during periods of deflation, which could result in losses. Government backing applies only to government issued securities, not iShares exchange traded funds.

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586 Billion Caution Flags


Thursday, April 5th, 2012

by Market Anthropology

Over one month ago I constructed the following chart that described the two previous occasions where the largest market cap company in the world went parabolic. Not surprisingly, on both occasions it marked the beginning of the end of the run in equities.

I added Apple for contrast, considering it was now the largest market cap company in the world and had also exhibited parabolic price signatures.


Roughly six weeks later, Apple has now firmly left the parabolic stage and has gone straight to the vertical (see Here) horizon. What was a 20 year performance record of 2900% in February – quickly became over 4000%.

I find it interesting and noteworthy, that after yesterdays once again buoyant bid – Apple has pulled up next to Microsoft’s market cap high from 2000 of roughly 586 billion. The following chart has striking balance, albeit a pronounced head and shoulders top – when expressed through the relative performance of the SPX and MSWORLD indices.

Regardless of public opinion, both the informed and the ignorant – a move such as this is unsustainable for Apple and very likely marks a historical highpoint for the company for some time. With that said, and as proven on a daily basis since early December, markets can remain irrational much longer than most suspect.

It should be noted that both previous successors to the title of World’s Largest Market Cap (that went parabolic) – certainly did not go bust, but maintained a leadership position within their respective industries. Their valuations simply matured and loss the enormous momentum drive that propelled them to unsustainable growth trajectories.

Unless of course it is different this time…

Copyright © Market Anthropology

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David Rosenberg: The Three Ways Bernanke Disappointed The Market, And Why It Is Dumping


Friday, September 23rd, 2011

With everyone chiming in with their take on Operation Twist, here is one of the few actually worthy ones on the matter.

From David Rosenberg

First, the Fed once again downgraded its outlook on the economy, citing “significant downside risks” (the word “significant” was not there on August 9th) and added “strains in global financial markets” as one of the reasons for the more downbeat assessment.

If there hadn’t been so many trial balloons being floated in recent weeks over the prospect of an Operation Twist (“OT”) style of policy easing, perhaps the stock market would have rallied as it did in rather dramatic fashion six weeks ago. At that time, the Fed did surprise the market by not merely signalling to investors that the central bank would remain accommodative beyond just what may be considered to be an “extended period”, but by actually stating that rates would be kept near 0% through mid-2013 at the very least. That was something that both bonds and stocks were not anticipating — a specific date well into the future.

This time around, there was very little that was not anticipated, particularly from a stock market perspective. Considering that Mr. Bernanke made this a two-day meeting instead of the one-day confab which was originally planned (the last time he did that was in December 2008 when QE1 was pledged), there were high hopes that the Fed was going to go further than just embarking on OT yesterday.

But the reason why equities may have sold off hard in the aftermath of the press release could boil down to these three other factors:

  1. By radically flattening the yield curve in this Operation Twist program (where the Fed sells short-dated securities and buys maturities between six and 30 years), net interest margins in the banking sector will likely be negatively affected.
  2. The dramatic decline in the 30-year bond yield is going to aggravate already-massively actuarially underfunded positions in pension funds
  3. The Fed says it is going to extend this Operation Twist program through to June 2012. This is a subtle hint to the markets that barring something really big occurring, there is no QE3 coming — not over the near term, in any event, and certainly not at the next meeting on November 1-2. So a stock market that has continuously been fuelled on hopes doesn’t have any in this regard for at least the next month and a half.There is now likely to be very little talk about another round of Fed stimulus, and as such, one less crutch for the bulls to lean on. If the Fed, for instance, had said that the OT would have a December 2011 expiry date, the markets would be salivating over what would come next. But June 2012 is a good nine months away (it was deliberately drawn out). It would seem strange at this point, barring a cataclysmic event, to have the Fed embark on a new QE strategy at a time when OT is still in play, not that it can’t happen. What is key is that the Fed did find a way to say to the market that this is it for a while, perhaps until we are well into 2012.

As for the fixed-income market, the big news was the size of the OT program ($400 billion versus market expectations of $300 billion), but the bigger news was that the switch was not merely going to be in the 7-to-10 year part of the Treasury curve — in a real ‘twist’, it will also include the long bond, as mentioned above. What the economic benefit of this will be is really anyone’s guess, but it is making long duration bond bulls ecstatic. The yield on the 30- year Treasury bond has fallen all the way down to 3%, but it is the only maturity that has yet to make it all the way down to a new cycle low; there is still nearly 50 basis points to go before the December 18, 2008 interim trough of 2.53% is tested (back then, the recession was largely behind us, not ahead of us). While the “bond” may look overbought right now on a technical basis, there has never been a time when yields bottomed before the recession even began.

Besides, a normal curve from overnight to the long bond is around 200 basis points, so to see an eventual retest or piercing of that 2.53% close of 33 months ago is not out of the question. We should add right here and right now that 30-year German bund yields are now at their all-time low of 2.46% and they don’t carry nearly as well as Treasuries. The yield on 30-year JGBs are now at 1.9% and in Switzerland the long bond yield is now 1.2%, added evidence that a further dramatic rally in the long-term Treasury is far from a radical viewpoint.

The mortgage market also got a bit of help today — though likely not much — from the Fed’s move to reinvest the principal payments from its maturing agency debt and agency MBS securities into agency MBS (instead of Treasuries as it had been doing).

All in, quite a tepid response to an economic outlook that now has “significant downside risks” when benchmarked against what was priced into the stock market. But there still were three dissenters and the tone of the press statement suggests that the meeting was a lively affair and not short on compromises (the FOMC minutes will be released on October 12th). If there is a surprise, it is the inclusion of the long bond in the program. At the margin, this was a backhanded signal that, sorry, this was not Step One with Step Two coming any time soon as it pertains to further monetary policy intervention in the marketplace. And when you look at the chronology of events — taking rates to effectively 0% in December 2008; embarking on QE1 in March 2009; moving to QE2 in November 2010; and now this Operation Twist resurrection, it is abundantly clear that the Fed has moved from cannons to shotguns to water pistols.

Source: Gluskin Sheff

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David Winters: Finding Value Opportunities Globally


Wednesday, June 22nd, 2011

David Winters, CEO, Wintergreen Advisers, who manages $2.2-billion (incl. $210-million Renaissance Global Markets Fund in Canada) is optimistic about finding great value around the world, and in the U.S., and he talks to CNBC about where and what he likes, even in these markets.

CNBC Transcript
Bill: Our next guest sees troubles as more of distraction from real opportunities he sees around the world in markets. David Winters, CEO of Wintergreen Advisors, considers himself in the minority and they have far outpaced the broader markets with returns of 25%. Where is he finding value with 60% of his $2 billion in assets in companies outside the U.S.? You get about 20% in the U.S. as well. Good to see you.

David Winters: Good to see you as well, Bill.

Bill: You’re not sitting here fretting about the Greek vote?

Winters: That’s the sideshow. There’s such big opportunities in the far east and around the world. There’s a couple billion people who want everything that we have, Bill, and they will work really hard to get it.

Bill: You came from the east, been in Asia the last six weeks. What did you find? We hear anecdotally, there’s wear and tear on margins now on the red hot economies over there.

Winters: Absolutely. At the end of the day though, girls still want jewelry, men want watches, everybody wants a better life for their children. So we think that if you focus on the long term, Bill, there’s a lot of money to be made.

Bill: What about here in the U.S.? You have 20%. What are you investing in?

Winters: We own companies like Norfolk Southern railroad, which will benefit from the recovery in the economy. They have vast coal reserves and they’re well run and we think there are companies to invest in, here in the United States, but if you cast your net globally, you have a lot of opportunity to make money.

Bill: You find a lot of opportunity in Singapore, right?

Winters: Singapore is interesting, but a small place. we like a company like Jardine Matheson that trades there, but earns its money throughout Southeast Asia. We like the idea of making money 24 hours a day.

Bill: Are you concerned China is due for a major correction at some time? does it concern you? I imagine you will look beyond that one as well.

Winters: I’m worried, of course. I have seen lots of construction, but at the end of the day, you have a billion and a half people and they want to work hard and they want everything. I’m sure there will be blips but we’re optimistic.

Do you play it by investing directly or do invest in Multinationals are are able to provide those goods and services overseas.

Winters: As they say, Bill, right on the nose. Global companies, super-regionals; we haven’t really found too many local companies yet but we’re looking.

Bill: Before I let you go, we should point out you like Berkshire Hathaway at these levels?

Winters: Yes, Berkshire, like most of the New York Stock Exchange is unloved, and we think it’s cheap. you would buy it at these levels here. I’m not supposed to say that, but I would say this.

Bill: What’s the catalyst to move that higher?

Winters: I think at some point the sentiment changes. People wake up and they go, things are really going to be all right and stocks move much higher, and I think Berkshire will be one of the stocks that moves higher.

Bill: David Winters, always good to see you.

Copyright © CNBC

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“Down the Rabbit Hole” (Saut)


Tuesday, June 21st, 2011

Down the Rabbit Hole

by Jeffrey Saut, Chief Investment Strategist, Raymond James

June 20, 2011

Alice in Wonderland: Sir, would you tell me, please, which way I ought to go from here?

The Cheshire Cat: That depends a good deal on where you want to get to.

Alice: I don’t much care where.

The Cat: Then it doesn’t much matter which way you go.

Like Alice, investors have lost their way following the “rabbit down the rabbit hole” for six weeks following the May 2 stock peak, as most of the indices I follow closed lower for each week over that timeframe. I referenced that six-week skein in last week’s strategy comments, noting the S&P 500 (SPX/1271.50) had fallen for six straight weeks for the only sixth time since 1995. If past is prelude, the SPX subsequently experienced decent gains over the ensuing six weeks every time! Worth considering, however, is that the SPX did not trade above its previous reaction high in any of those previous occasions. I also referenced how oversold the equity markets were with only 15.6% of the SPX stocks are above their respective 50-day moving averages (DMAs). Then there were other finger to wallet ratios, like the CBOE Equity Put/Call ratio, which at 0.99 (nearly one “put” traded for every “call” traded) was at its highest ratio (the most bears) in nearly two years. Additionally, the 10-day Put/Call ratio “tagged” 0.78 last week for its most bearish (contrarily: bullish) reading since February 2009. As for sentiment, hereto the numbers are eschewed too bearishly. Accordingly, I continue to think the equity markets are in the process of making a “low.” As stated, “The only question to me, at least in the near term, is if we get a selling climax or a selling dry up?!” The ideal pattern would be for some kind of “pornographic plunge” hour into the 1230 – 1250 zone, but given last week’s action, a “selling dry up” (where the sellers just run out of steam) can’t be ruled out.

Obviously, the drivers of the “stock slide” have been the Greek Gotcha combined with the softer economic numbers. But as repeatedly stated, I just don’t understand why participants were surprised by said numbers since they were telegraphed by Japan’s tragedy (supply chain disruptions), the weird weather (tornados/floods), and a 44% rise in the price of gasoline between January and May. Moreover, I continue to think the economy is “geared” to reset itself. Manifestly, vehicle production is scheduled to ramp 23%+ in July, Japan is doing better, the debt ceiling debacle will be resolved with the attendant outsized spending cuts I have been suggesting, gasoline prices have declined by ~15% from their May peak, U.S. bank loans are increasing, and capex should strengthen in 2H11. That improving capex view is reflected in the Business Roundtables CEO Capex Outlook Survey that also has a high correlation with CEOs’ hiring intentions (read: better employment figures). To be sure, I think the business cycle is still in play whereby profits explode, which drives an inventory rebuild, followed by a capex cycle, and then people get hired.

Reinforcing that view is this insight from our sagacious friends at the “must have” GaveKal organization. To wit:

“We would still attach a probability of well over 50% to our core scenario of strong US growth. Our reasons were presented in the Quarterly: huge corporate cash-flows and the weak US Dollar will keep investment and exports booming; bank lending is reviving and starting to trickle down to the crucial small business sector; and employment, retail sales and consumer confidence were all improving strongly, until the temporary setback in the latest figures. We believe this setback was due very largely to the shock of $120 oil. Indeed, we had been warning since January that the combination of the Fed’s easy money and Middle Eastern upheavals was causing severe economic damage. In our view the present global slowdown and correction in financial markets is thus largely an overdue reaction to the unexpected dangers that materialized in the Middle East (and to a lesser extent in Japan and Europe) at the start of the year. The good news is that the most important of these shocks—the oil crisis—is now almost certainly over as the biggest damage to the world economy came not from the direct effect of oil at $120, but from the possibility that the price would jump to $150 or even $200, if political chaos spread to Saudi Arabia, Kuwait or the UAE. With this risk now essentially removed, the Saudis are eager to teach the rest of OPEC (especially Iran) a lesson by maximizing their output and dumping it on the market to keep prices down. Thus a strong rebound is still much more likely than an extended soft-patch, never mind the outright recession for which the bond market is now priced. And that, in turn will probably mean the Fed starts its journey back to monetary normality much sooner than the markets expect.”

As for last week’s action, while it’s true the SPX tested, and held, its 200-day moving average (DMA) at ~1258 on Thursday, the SPX “missed” out on a prime opportunity to build on that upside reversal last Friday. Indeed, Friday’s opening salvo saw the SPX “tag” ~1280 (+13 points) in the first five minutes of trading. From there, however, the market zigzagged its way through the session and struggled to close only ~4 points higher. Disappointing – you bet it was because Friday’s struggle worked off some of the oversold condition and therefore leaves us with a pretty weak stock market trading pattern. In fact, this sort of set-up suggests further weakness into the aforementioned 1230 – 1250 zone. So unless the SPX can better the 1292 – 1296 level, the current configuration favors further downside probing.

The losing sectors for the week were: Materials (-1.96%); Energy (-1.65%); and Information Technology (-1.16%). The winners were: Consumer Staples (+1.20%); Industrials (+1.09%); and Utilities (+1.0%) as the restless rotation extends. Meanwhile the Financials continued to languish. Indeed, of the 10 macro sectors the Financials have been the worst performing, losing some 6.50% year to date. Unfortunately, that leaves my New Year’s “call” that “2011 should be the years of the banks” looking pretty foolish. Fortunately, I have avoided the underperforming marquee bank stocks, preferring the smaller names like IBERIABANK Corporation (IBKC/$57.09/Strong Buy). Speaking to this “small bank” theme, last week I had dinner with David Ellison, portfolio manager of the FBR Small Cap Financial Fund (FBRSX/$18.67). I used to chat with David back in the 1980s when he hung his hat at Fidelity and managed Fidelity’s Select Financial Fund. Interestingly, David currently owns a number of the smaller banks I have commented on in these missives. Even more interesting is that David is my kind of investor since when he can’t find attractive investment opportunities he is content to hold cash. Case in point, unable to find attractive investments going into the 2008 financial fiasco, David held 60% of his fund in cash. Indeed, my kind of investor. Accordingly, participants wanting to fill the financial sleeve of their asset allocation model should consider David’s fund.

The call for this week: In last week’s comments I noted the SPX had been down for six consecutive weeks for only the 17th time since 1928. As Bespoke Investment Group wrote early last week, “If there is any consolation for the bulls, it is that there have only been three weekly losing streaks of seven or more (weeks) for the index. (After six consecutive weeks down) in week seven, the SPX has risen an average of 1.03%.” While last week’s gain of 0.52% fell short of that average, the SPX did manage to avoid its seventh weekly wilt. Not so for the NASDAQ, which recorded its seventh down week with a loss of 1.03%? I am leery when the NASDAQ doesn’t confirm the SPX’s upside, so unless the SPX closes decisively above the 1292 – 1296 level I am cautious. And with that, I am leaving for a European tour to see accounts and speak at conferences. If history is any guide, the stock market will bottom in my absence. We’ll see what happens when I return in a few weeks.

Copyright © Jeffrey Saut, Raymond James

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The Economy and Bond Market Diary (September 27, 2010)


Saturday, September 25th, 2010

The Economy and Bond Market Diary (September 26, 2010)

Treasury bonds rallied this week sending yields lower as the Fed hinted strongly that an additional round of quantitative easing may be just around the corner. The chart below shows the yield on the 10-year Treasury, which fell 13 basis points for the week.

10-year Treasury Yield

Strengths

  • The Federal Reserve stated with inflation at low levels for the foreseeable future and elevated unemployment, additional monetary easing may be appropriate. Policy action could come in as little as six weeks.
  • Durable goods orders fell 1.3 percent, but if you scratch below the surface, the weakness was driven by defense and aircraft orders. New orders rose at least two percent in every category other than defense, a very positive sign for manufacturing.
  • The Conference Board’s Index of Leading Economic Indicators Index rose a better-than-expected 0.3 percent.

Weaknesses

  • New home sales in August were unchanged at 288,000. Other housing data out this week showed mixed results as the housing market continues to struggle to make significant headway.
  • Initial jobless claims rose to 465,000, breaking the down trend we had experienced the past couple of weeks.

Opportunities

  • Inflation is unlikely to be a problem for some time and this gives central bankers and other policy makers around the world room for expansive policies.

Threats

  • European financial concerns have intensified recently as long-term solutions still appear elusive for many economies.

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Q&A with Paul Volcker


Wednesday, January 27th, 2010

With the “Volcker Rule” regarding US financial regulation taking center stage, Paul Volcker’s response to questions on financial innovation at the “Future of Finance Initiative” six weeks ago makes for interesting viewing material.

Source: Wall Street Journal, January 26, 2010.

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