The Chinese leadership said so yesterday, despite their previous intermittent cat-calls for a new currency. We suspect the cocky little student know-it-alls at Peking University (a common theme at most universities we might add, not just in China) are likely rolling on the floor in uncontrollable laughter at the thought of the US dollar lasting more than a few more months. They can’t wait to run out and sell the dollar and buy euro instead…oh wait, I forgot, they aren’t allowed to do that unless their masters in Beijing approve…so sorry.
Cat calls of a new currency order are coming from Russia now too. It is to laugh to watch President Medvedev blame the US dollar for all of Russia’s ills, loving it when all thingsThe Chinese leadership said so yesterday, despite their previous intermittent cat-calls for a new currency. We suspect the cocky little student know-it-alls at Peking University (a common theme at most universities we might add, not just in China) are likely rolling on the floor in uncontrollable laughter at the thought of the US dollar lasting more than a few more months. They can’t wait to run out and sell the dollar and buy euro instead…oh wait, I forgot, they aren’t allowed to do that unless their masters in Beijing approve…so sorry.
Cat calls of a new currency order are coming from Russia now too. It is to laugh to watch President Medvedev blame the US dollar for all of Russia’s ills, loving it when all thingscommodities were heading north and US-dollar based credit was pumping up all global asset markets. After all, criticizing the US fits nicely with the Putin Youth Thugs and pumps up the faithful (the crowd still carrying placards of a man named Stalin who murdered 60-80 million during his sick reign of power) who always seem to love a good dose of nationalism when things lurch from bad to worse thanks to cleptocratic leadership. Unlikely anyone on the “Obama Global US Apology Tour” will be sharing those views with the fawning media entourage. Is Bruce Springsteen the warm-up band on that tour? So we have the two countries that recently set their serfs free, to a degree, leading the charge for a new currency and slamming US “over-consumption.” It is fresh! For it was the symbiotic game of Western “overconsumption”, via “overproduction” surplus reserve recycling through the world’s most efficient financial system that nicely led to the enrichment of both the cat-call countries as it stimulated the insatiable demand for final goods. Even Mr. Geithner alluded to this in China, but few paid any attention. He said China must work to increase domestic demand because the good old days of the US consumer on a buying binge are over for a while.
He might have added that despite all the love for China’s forwarding looking infrastructure investment, which granted is a much better use of funds than the waste being generated by the current US Federal Budget, is a very risk bet on a V-shaped recovery even though seemingly all the analysts trotted out on CNBC, and many of the elite bank analysts institutional research heads, use it as justification for a new bull market that will continue as far as the eye can see; haven’t we heard that kind of talk before? It sounds so eerily familiar. Call us skeptical. We have been called much worse, which I am sure comes as no surprise. No doubt the United States has abused its world reserve currency status for the last several years—both leading parties must plead guilty as charged. But what I guess is galling is watching country after country blame the US for all ills.
They seem to forget the US was primarily responsible for setting up the global financial system, with the help of a pretty smart English fellow who knew a bit about monetary history and the like, which has served us very well and achieve the then immediate goal of restoring confidence in the global trading system after WWII and was key for getting worn torn Europe at el back on their feet. It was the dollar-based system that helped pull the world from the morass back then, not the gold standard, which is a system that continues to be overrated by those who seemingly know little about it. “The dirty little secret of the gold standard is that when the Bank of England raised interest rates, it did not see an net outflow of gold from Germany or France.
Germany and France managed to preserve their stocks of gold by putting pressure on their colonies and/or financial dependencies that would in turn transfer gold to the Reichsbank or the Banque de France.”commodities were heading north and US-dollar based credit was pumping up all global asset markets. After all, criticizing the US fits nicely with the Putin Youth Thugs and pumps up the faithful (the crowd still carrying placards of a man named Stalin who murdered 60-80 million during his sick reign of power) who always seem to love a good dose of nationalism when things lurch from bad to worse thanks to cleptocratic leadership. Unlikely anyone on the “Obama Global US Apology Tour” will be sharing those views with the fawning media entourage.
Is Bruce Springsteen the warm-up band on that tour?
So we have the two countries that recently set their serfs free, to a degree, leading the charge for a new currency and slamming US “over-consumption.” It is fresh! For it was the symbiotic game of Western “overconsumption”, via “overproduction” surplus reserve recycling through the world’s most efficient financial system that nicely led to the enrichment of both the cat-call countries as it stimulated the insatiable demand for final goods.
Even Mr. Geithner alluded to this in China, but few paid any attention. He said China must work to increase domestic demand because the good old days of the US consumer on a buying binge are over for a while. He might have added that despite all the love for China’s forwarding looking infrastructure investment, which granted is a much better use of funds than the waste being generated by the current US Federal Budget, is a very risk bet on a V-shaped recovery even though seemingly all the analysts trotted out on CNBC, and many of the elite bank analysts institutional research heads, use it as justification for a new bull market that will continue as far as the eye can see; haven’t we heard that kind of talk before?
It sounds so eerily familiar. Call us skeptical.
We have been called much worse, which I am sure comes as no surprise. No doubt the United States has abused its world reserve currency status for the last several years—both leading parties must plead guilty as charged. But what I guess is galling is watching country after country blame the US for all ills.
They seem to forget the US was primarily responsible for setting up the global financial system, with the help of a pretty smart English fellow who knew a bit about monetary history and the like, which has served us very well and achieve the then immediate goal of restoring confidence in the global trading system after WWII and was key for getting worn torn Europe at el back on their feet. It was the dollar-based system that helped pull the world from the morass back then, not the gold standard, which is a system that continues to be overrated by those who seemingly know little about it. “The dirty little secret of the gold standard is that when the Bank of England raised interest rates, it did not see an net outflow of gold from Germany or France. Germany and France managed to preserve their stocks of gold by putting pressure on their colonies and/or financial dependencies that would in turn transfer gold to the Reichsbank or the Banque de France.”“…The gold standard never worked according to theory because the world’ three main trading partners (UK, France, Germany) were transferring monetary pressures to their colonies, foreign possessions and dependencies. “The status of Serbia, Herzegovina, Morocco, the Ottoman Empire, Egypt, Baghdad, Basra, the Congo, the Cameroons, and the other debtors, suppliers and customers determined the status of gold-standard monetary relations among the main powers at the center, their domestic interest rates, employment levels and political stability. This, and not Balkan real estate per se, was the reason the First World War began in Sarajevo. “Because it left the issue of the global financial order unresolved, the First World War led directly to the Great Depression and then to the Second World War—as whose conclusion we saw the Bretton Woods conference that established a dollar world order, with the dollar anchor on a fixed price of gold. The exchange rates of the dollar against the postwar European and Japanese currencies were set at concessional levels (artificially expensive dollar and artificially cheap German Mark, French Franc, Japanese Yen, etc.) on purpose in order to allow the war ravaged countries to rebuild their economies on the basis of competitively priced exports. “There was a clause in the Bretton Woods agreements that these exchange rates would be renegotiated to restore dollar competitiveness when the European economies had recovered. But when the time came, in the late 1960s, Europe (led by President De Gaulle) refused to renegotiate the exchange rates, demanding instead a dollar devaluation with respect to gold. De Gaulle insisted on this as part of his broad ambition to return to the global system back to a full-fledged gold standard of the pre-1014 variety. President Nixon refused, instead formally delinking the dollar from gold during the summer of 1971.” “…With the present crisis, however, questions have arisen about the future role and status of both the dollar and the United States itself. These questions are frivolous. In a world of fiat currencies, there is no substitute for the dollar. And if the face of the failure of the gold standard (“the problem of 1914”), there is no substitute for a world of fiat currencies.”
Criton Zoakos, courtesy of our friend Al…both men are wise seers of the global macro world with a depth of experience to compare Dollar one-way bet sentiment extreme is building on the back of what we perceive is a lot of false rationales. But then again, what’s new!
Black Swan Capital LLC
www.blackswantrading.com
Wednesday, June 3, 2009
Socialism
"The problem with socialism is that you eventually run out of other people's money." ---- Margaret Thatcher...
Market Reflections 6/2/2009
Markets took a breather following Monday's surge amid talk that stocks and commodities are overbought and particular talk that oil is most overbought of all. But as long as green shoots keep appearing, talk is not likely to turn into selling. Pending home sales, helped by first-time buyer credits, proved much better than expected and point to continuing gains for existing home sales -- a result that would finally justify expectations that the housing sector has bottomed. Vehicle sales proved surprisingly strong in May, showing a 7 percent gain vs. April and pointing to strength in next week's big retail sales report.
The S&P 500 gained 0.2 percent to just under 945. Oil ended at $68.50 ahead of tomorrow's meeting between President Obama and his host King Abdullah of Saudi Arabia who some are saying may offer a cooperative statement on oil prices. Gold ended at $981 with silver just under $16. The dollar continues to fall, reflecting a move out of safety and also questions on the risks of inflation. The dollar index fell 1.0 percent to 78.40 for the lowest level since October.
The S&P 500 gained 0.2 percent to just under 945. Oil ended at $68.50 ahead of tomorrow's meeting between President Obama and his host King Abdullah of Saudi Arabia who some are saying may offer a cooperative statement on oil prices. Gold ended at $981 with silver just under $16. The dollar continues to fall, reflecting a move out of safety and also questions on the risks of inflation. The dollar index fell 1.0 percent to 78.40 for the lowest level since October.
Tuesday, June 2, 2009
Be long oil E&P stocks
Three back of the envelope fundamental reasons to be long oil E&P stocks.
1. OPEC cuts are more than enough to offset declining demand by the most bearish estimates (and that is assuming less than full compliance).
The International Energy Agency (IEA) forecasts global crude oil demand to decline approximately 2.56 million barrels per day to 83.2 million barrels of crude oil per day. This happens to be the most bearish of the estimates between the major demand forecasters.
Obviously at first glance this is bearish news since reductions in demand are not typically bullish for price action. However, OPEC has taken action to effectively offset this reduced demand via production cuts. OPEC has a quota cut of 4.2 MMB/D. Of course, not all members of OPEC are 100% compliant with this production quota. In fact as of last month there was really only 76% compliance among OPEC members.
While it may appear that 24% is a significant amount of cheating, at a near record OPEC compliance of 76% or 3.2 MMB/D of production cuts, the production cuts more than offset the most bearish forecast for demand decline at 2.56 million barrels per day. This obviously doesn’t mean that supply will run short overnight. What it means is that over time the world will begin to draw inventories down and before you know it we will be in a supply crunch again.
2. The weak dollar doctrine will fuel commodity inflation in the United States
Well, it is official the U.S. is taking a 60% stake in General Motors (GM). It is all over the news headlines and will likely remain there for the next several weeks. It seems clear the Obama administration will do whatever it takes to promote their set of ideals which includes destroying the fiat currency of the world.
Interestingly enough, it is perfectly logical for Obama to follow a weak dollar policy doctrine. Why would I suggest that? The vast majority of politicians currently in power in this country are absolutely terrible people. They won’t stop at anything to gain votes and Obama is certainly not above that. Hence, the UAW gets a substantially larger stake in GM than the bondholders.
But back on point…if you are an extremely liberal President who seems to legitimately prescribe to socialism as an economic system…and you want to change the system in the United States to support your particular ideology…what would you do?
Beyond directly taking over the means of production, he is actually doing that…you destroy the value of your currency! Why would you do that? Because as the USD collapses goods produced in the United States appear more attractive, in terms of cost, for export.
Thus, by destroying the value of the U.S. dollar, Obama will effectively help promote blue collar unionized workers which effectively will keep the far left wing liberal members of the Democratic Party in office. The weak dollar doctrine will have unintended consequences…
So, for the last couple of years the USD and commodities (namely crude oil) have had a rather strong negative correlation such that when the USD falls in value relative to a basket of currencies, crude oil and commodities tend to rise in value. Effectively, with Obama’s weak dollar doctrine he is pursing policy that will directly lead to commodity price inflation.
Oil prices have been on a tear recently-some of the appreciation can be attributed to the deteriorating U.S. dollar and I believe this will be a multi year trend until the policy of the U.S. government changes.
3. Demand is stabilizing for some consumer fuels. Global demand growth will set in.
Economic data in certain areas of the globe are showing signs of a rebound. China is of course a huge driver of this and will likely continue to be a huge driver. The ripples of Chinese growth will be felt in many other places.
Of most interest to me are countries within South America such as Chile or Brazil. As China applies their stimulus money efficiently, they will begin meaningful expansion or at the very least they will meet their estimated required growth rate to maintain civil order. This will most definitely support surrounding Asian nations such as Taiwan and Malaysia (namely Singapore).
All of this leads to higher commodity consumption via bunker fuel and other petroleum products.
Disclosure: Long PCU, VALE,
1. OPEC cuts are more than enough to offset declining demand by the most bearish estimates (and that is assuming less than full compliance).
The International Energy Agency (IEA) forecasts global crude oil demand to decline approximately 2.56 million barrels per day to 83.2 million barrels of crude oil per day. This happens to be the most bearish of the estimates between the major demand forecasters.
Obviously at first glance this is bearish news since reductions in demand are not typically bullish for price action. However, OPEC has taken action to effectively offset this reduced demand via production cuts. OPEC has a quota cut of 4.2 MMB/D. Of course, not all members of OPEC are 100% compliant with this production quota. In fact as of last month there was really only 76% compliance among OPEC members.
While it may appear that 24% is a significant amount of cheating, at a near record OPEC compliance of 76% or 3.2 MMB/D of production cuts, the production cuts more than offset the most bearish forecast for demand decline at 2.56 million barrels per day. This obviously doesn’t mean that supply will run short overnight. What it means is that over time the world will begin to draw inventories down and before you know it we will be in a supply crunch again.
2. The weak dollar doctrine will fuel commodity inflation in the United States
Well, it is official the U.S. is taking a 60% stake in General Motors (GM). It is all over the news headlines and will likely remain there for the next several weeks. It seems clear the Obama administration will do whatever it takes to promote their set of ideals which includes destroying the fiat currency of the world.
Interestingly enough, it is perfectly logical for Obama to follow a weak dollar policy doctrine. Why would I suggest that? The vast majority of politicians currently in power in this country are absolutely terrible people. They won’t stop at anything to gain votes and Obama is certainly not above that. Hence, the UAW gets a substantially larger stake in GM than the bondholders.
But back on point…if you are an extremely liberal President who seems to legitimately prescribe to socialism as an economic system…and you want to change the system in the United States to support your particular ideology…what would you do?
Beyond directly taking over the means of production, he is actually doing that…you destroy the value of your currency! Why would you do that? Because as the USD collapses goods produced in the United States appear more attractive, in terms of cost, for export.
Thus, by destroying the value of the U.S. dollar, Obama will effectively help promote blue collar unionized workers which effectively will keep the far left wing liberal members of the Democratic Party in office. The weak dollar doctrine will have unintended consequences…
So, for the last couple of years the USD and commodities (namely crude oil) have had a rather strong negative correlation such that when the USD falls in value relative to a basket of currencies, crude oil and commodities tend to rise in value. Effectively, with Obama’s weak dollar doctrine he is pursing policy that will directly lead to commodity price inflation.
Oil prices have been on a tear recently-some of the appreciation can be attributed to the deteriorating U.S. dollar and I believe this will be a multi year trend until the policy of the U.S. government changes.
3. Demand is stabilizing for some consumer fuels. Global demand growth will set in.
Economic data in certain areas of the globe are showing signs of a rebound. China is of course a huge driver of this and will likely continue to be a huge driver. The ripples of Chinese growth will be felt in many other places.
Of most interest to me are countries within South America such as Chile or Brazil. As China applies their stimulus money efficiently, they will begin meaningful expansion or at the very least they will meet their estimated required growth rate to maintain civil order. This will most definitely support surrounding Asian nations such as Taiwan and Malaysia (namely Singapore).
All of this leads to higher commodity consumption via bunker fuel and other petroleum products.
Disclosure: Long PCU, VALE,
Market Reflections 6/1/2009
Monday was a great day for the green shoots, starting with purchaser reports out of China followed by a very solid ISM purchaser report on U.S. manufacturing where new orders, after 17 months, are finally on the increase. Other green shoots included a strong gain in personal income and better-than-expected construction spending data. There's more good news out of the banking sector as the Fed announced that 19 banks will start repaying their TARP injections next week. But Monday also marked the fully telegraphed bankruptcy of General Motors, a company that the government will downsize and will continue to support.
Stocks rallied powerfully on the data with the S&P 500 gaining 2.6 percent to 942.87. All the good news made for big talk of inflation which steepened the Treasury yield curve dramatically with the 10-year yield up 22 basis points to 3.68 percent. Gold shot up to $990 on the inflation concern before settling back to $975. Oil ended at $68. The dollar ended well up from lows, down only slightly with the dollar index off 0.1 percent to 79.24.
Stocks rallied powerfully on the data with the S&P 500 gaining 2.6 percent to 942.87. All the good news made for big talk of inflation which steepened the Treasury yield curve dramatically with the 10-year yield up 22 basis points to 3.68 percent. Gold shot up to $990 on the inflation concern before settling back to $975. Oil ended at $68. The dollar ended well up from lows, down only slightly with the dollar index off 0.1 percent to 79.24.
Monday, June 1, 2009
Changes in Dow Index
General Motors, which filed for Chapter 11 bankruptcy protection on Monday morning, and Citigroup will be removed from the Dow Jones Industrial Average. Cisco Systems will replace GM in the 30-company stock average, and Travelers Co. will replace Citi. The changes are effective June 8.
Saturday, May 30, 2009
Weekly Market Update (5/29/09)
HEADLINE NEWS WEEK ENDING 5/29/09
Overview
The Commerce Department revised up its estimate of US real GDP growth for the first quarter of 2009 to an annual rate of -5.7% from the -6.1% decline reported previously. more...http://payden.com/library/weeklyMarketUpdateE.aspx
US MARKETS
Treasury/Economics
US Treasuries sold off heavily at the beginning of the week, accelerated by over $100 billion of Treasury supply in 2-, 5- and 7-year notes this week. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Large-Cap Equities
The stock market rallied during this holiday shortened week despite fears of rising mortgage rates. Commodity prices continued to rise as crude oil prices spiked above $66 a barrel. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Corporate Bonds
Investment grade primary activity had another solid week with issuers racing to get deals done prior to month-end. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Mortgage-Backed Securities
Mortgages went on a wild rollercoaster ride as higher yields triggered a wave of piggyback selling by market participants. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Municipal Bonds
Are we witnessing a return to normalcy in the municipal bond market? Rising yields in the Treasury market cascaded across asset classes this week and municipal bond yields followed with a lag. more...http://payden.com/library/weeklyMarketUpdateE.aspx
High-Yield
The high yield market momentum of April continued into May, though the magnitude of the upward moves has become more muted. more...http://payden.com/library/weeklyMarketUpdateE.aspx
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The sectors with the best performance were basic resources (+7.0%) and oil & gas (+4.3%). more...http://payden.com/library/weeklyMarketUpdateE.aspx
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -3.3% this week, while the Russian stock index RTS went up +7.3%. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Global Bonds and Currencies
The European and UK government bond markets sold off during the first half of the week in sympathy with the sharp rise in US Treasury yields. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week as risk appetite remained strong and equity markets rallied. more...http://payden.com/library/weeklyMarketUpdateE.aspx
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Overview
The Commerce Department revised up its estimate of US real GDP growth for the first quarter of 2009 to an annual rate of -5.7% from the -6.1% decline reported previously. more...http://payden.com/library/weeklyMarketUpdateE.aspx
US MARKETS
Treasury/Economics
US Treasuries sold off heavily at the beginning of the week, accelerated by over $100 billion of Treasury supply in 2-, 5- and 7-year notes this week. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Large-Cap Equities
The stock market rallied during this holiday shortened week despite fears of rising mortgage rates. Commodity prices continued to rise as crude oil prices spiked above $66 a barrel. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Corporate Bonds
Investment grade primary activity had another solid week with issuers racing to get deals done prior to month-end. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Mortgage-Backed Securities
Mortgages went on a wild rollercoaster ride as higher yields triggered a wave of piggyback selling by market participants. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Municipal Bonds
Are we witnessing a return to normalcy in the municipal bond market? Rising yields in the Treasury market cascaded across asset classes this week and municipal bond yields followed with a lag. more...http://payden.com/library/weeklyMarketUpdateE.aspx
High-Yield
The high yield market momentum of April continued into May, though the magnitude of the upward moves has become more muted. more...http://payden.com/library/weeklyMarketUpdateE.aspx
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The sectors with the best performance were basic resources (+7.0%) and oil & gas (+4.3%). more...http://payden.com/library/weeklyMarketUpdateE.aspx
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -3.3% this week, while the Russian stock index RTS went up +7.3%. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Global Bonds and Currencies
The European and UK government bond markets sold off during the first half of the week in sympathy with the sharp rise in US Treasury yields. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week as risk appetite remained strong and equity markets rallied. more...http://payden.com/library/weeklyMarketUpdateE.aspx
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Friday, May 29, 2009
Trading & Investing Rules: A reminder
I thought it might be a good time to review some wise advice from some proven brilliant traders as introduced to us in Jack Schwagers great book, “Trading Wizards”:
Bruce Kovner
• Do not overtrade and use proper position size.
• The market usually leads because there are people who know more than you do.
• I assume that the price for a market on any given day is the correct price.
• Do not personalize the markets.
Michael Marcus
• Patience…stay with a position until the trend changes…be patient enough to wait for a clearly defined situation
• Always use stops
• Always pick a point you will get out before you get in
• The best trades have three things going for them
o First – the fundamentals suggest that there is an imbalance of supply and demand
o Second – the chart must show that the market is moving in the direction that the fundamentals suggest
o Third – when the news comes out, the market should act in a way that reflects the right psychological tone.
Ed Seykota
• Longevity is the key to success.
• In order of importance to me are: 1) the long-term trend, 2) the current chart pattern, and 3) picking a good spot to buy or sell.
• Common patterns transcend individual market behavior
• Trading rules:
o Cut losses
o Ride winners
o Keep bets small
o Follow the rules without question
o Know when to break the rules
• Everybody gets what they want out of the market
That is about the best you can do…I think.
Harry Truman once said: “The only thing new in the world is the history we don’t know.” I think we can apply that to trading: “The only thing new in the world is re-learning the key market adages shared with us by the truly great traders that have gone before us.”
Bruce Kovner
• Do not overtrade and use proper position size.
• The market usually leads because there are people who know more than you do.
• I assume that the price for a market on any given day is the correct price.
• Do not personalize the markets.
Michael Marcus
• Patience…stay with a position until the trend changes…be patient enough to wait for a clearly defined situation
• Always use stops
• Always pick a point you will get out before you get in
• The best trades have three things going for them
o First – the fundamentals suggest that there is an imbalance of supply and demand
o Second – the chart must show that the market is moving in the direction that the fundamentals suggest
o Third – when the news comes out, the market should act in a way that reflects the right psychological tone.
Ed Seykota
• Longevity is the key to success.
• In order of importance to me are: 1) the long-term trend, 2) the current chart pattern, and 3) picking a good spot to buy or sell.
• Common patterns transcend individual market behavior
• Trading rules:
o Cut losses
o Ride winners
o Keep bets small
o Follow the rules without question
o Know when to break the rules
• Everybody gets what they want out of the market
That is about the best you can do…I think.
Harry Truman once said: “The only thing new in the world is the history we don’t know.” I think we can apply that to trading: “The only thing new in the world is re-learning the key market adages shared with us by the truly great traders that have gone before us.”
Breakeven on investing activities
On the inflation front, the GDP price index was revised to an annualized 2.8 percent increase in the latest GDP report issued today by the Commerce department.
Factoring these new estimates the following are the Minimum Rates of Return required to Breakeven after Tax and Inflation
In the 35% Tax Bracket -- 3.915%
In the 25% Tax Bracket -- 3.625%
In the 15% Tax Bracket -- 3.335%
This means that if you have money invested and are earning less than 3.3% on it at present, you will be losing purchasing power and will be worse off in the near future.
Translation: you are not earning enough on your money to buy the same amount of goods and services (the things you use to live on)a year from now than it costs you today for those same items.
This is, of course, a moving target. The current economic climate in the USA (and worldwide) will be getting worse from your point of view. The things you need to buy, like gasoline and food, will become more expensive at the same time that governments worldwide will be trying as hard as they can to keep rates of return down as low as they can.
What to do: find someone who can show you where you can earn more than 5% on your money. It can be done. But not by investing with the Government. The Government investments are among the most risky to your purchasing power that you can make now.
Factoring these new estimates the following are the Minimum Rates of Return required to Breakeven after Tax and Inflation
In the 35% Tax Bracket -- 3.915%
In the 25% Tax Bracket -- 3.625%
In the 15% Tax Bracket -- 3.335%
This means that if you have money invested and are earning less than 3.3% on it at present, you will be losing purchasing power and will be worse off in the near future.
Translation: you are not earning enough on your money to buy the same amount of goods and services (the things you use to live on)a year from now than it costs you today for those same items.
This is, of course, a moving target. The current economic climate in the USA (and worldwide) will be getting worse from your point of view. The things you need to buy, like gasoline and food, will become more expensive at the same time that governments worldwide will be trying as hard as they can to keep rates of return down as low as they can.
What to do: find someone who can show you where you can earn more than 5% on your money. It can be done. But not by investing with the Government. The Government investments are among the most risky to your purchasing power that you can make now.
GDP
Released on 5/29/2009 8:30:00 AM For Q1:09
Previous Consensus Consensus Range Actual
Real GDP - Q/Q change - SAAR -6.1 % -5.5 % -6.4 % to -5.1 % -5.7 %
GDP price index - Q/Q change - SAAR 2.9 % 2.9 % 2.8 % to 2.9 % 2.8 %
Highlights
First quarter GDP was revised up moderately as the Commerce Department's first revision bumped up the quarter's growth rate to a 5.7 percent annualized decline from the initial estimate of a 6.2 percent contraction. The revised estimate was worse than the consensus forecast for a 5.5 percent decrease. The upward revision was primarily due to less negative inventories and a smaller decline in exports.. The first quarter drop in GDP followed a 6.3 percent decrease the previous quarter.
On the inflation front, the GDP price index was revised to an annualized 2.8 percent increase which was incrementally lower than the initial estimate of 2.9 percent. The markets had expected an unrevised 2.9 percent increase. The headline PCE index was unrevised with a 1.0 percent decline while core PCE inflation also was unrevised with an annualized 1.5 percent increase.
Year-on-year growth for real GDP dropped by 2.5 percent, after falling 0.8 percent in the fourth quarter.
Although GDP growth was not quite as good as markets expected, the shortfall was not that significant. Markets likely have put these numbers behind and are focusing on post-open numbers for the Chicago PMI and consumer sentiment index. The sentiment number may be what markets really care about today, given the importance of improved consumer sentiment for recovery to take hold any time soon.
Market Consensus Before Announcement
GDP for the first quarter initial estimate came in with a sharp 6.1 percent annualized drop and followed a 6.3 percent contraction the prior quarter. A key fact from the report was that the first quarter decrease was led by a $103.7 billion cutback in inventories. Real final sales of domestic product fell only 3.4 percent while real final sales to domestic purchasers declined 5.1 percent annualized (purchases by U.S. residents of goods and services wherever produced). Markets likely will be watching to see whether weakness remains in reduced inventory investment. The cutback in inventories is seen as helping set up stronger growth in coming quarters.
Definition
Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.
Previous Consensus Consensus Range Actual
Real GDP - Q/Q change - SAAR -6.1 % -5.5 % -6.4 % to -5.1 % -5.7 %
GDP price index - Q/Q change - SAAR 2.9 % 2.9 % 2.8 % to 2.9 % 2.8 %
Highlights
First quarter GDP was revised up moderately as the Commerce Department's first revision bumped up the quarter's growth rate to a 5.7 percent annualized decline from the initial estimate of a 6.2 percent contraction. The revised estimate was worse than the consensus forecast for a 5.5 percent decrease. The upward revision was primarily due to less negative inventories and a smaller decline in exports.. The first quarter drop in GDP followed a 6.3 percent decrease the previous quarter.
On the inflation front, the GDP price index was revised to an annualized 2.8 percent increase which was incrementally lower than the initial estimate of 2.9 percent. The markets had expected an unrevised 2.9 percent increase. The headline PCE index was unrevised with a 1.0 percent decline while core PCE inflation also was unrevised with an annualized 1.5 percent increase.
Year-on-year growth for real GDP dropped by 2.5 percent, after falling 0.8 percent in the fourth quarter.
Although GDP growth was not quite as good as markets expected, the shortfall was not that significant. Markets likely have put these numbers behind and are focusing on post-open numbers for the Chicago PMI and consumer sentiment index. The sentiment number may be what markets really care about today, given the importance of improved consumer sentiment for recovery to take hold any time soon.
Market Consensus Before Announcement
GDP for the first quarter initial estimate came in with a sharp 6.1 percent annualized drop and followed a 6.3 percent contraction the prior quarter. A key fact from the report was that the first quarter decrease was led by a $103.7 billion cutback in inventories. Real final sales of domestic product fell only 3.4 percent while real final sales to domestic purchasers declined 5.1 percent annualized (purchases by U.S. residents of goods and services wherever produced). Markets likely will be watching to see whether weakness remains in reduced inventory investment. The cutback in inventories is seen as helping set up stronger growth in coming quarters.
Definition
Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.
Market Reflections 5/28/2009
A big 1.9 percent jump in the always volatile durable goods report was all that it took for funds to move into equities and commodities on the expectation of economic recovery and inflation. But other data in the session were not so hot. New home sales firmed but remain very weak, while jobless claims continue to point to another month of massive job losses.
Oil rose nearly $2 to end under $65, given a special boost by drawdowns in oil and gasoline stocks. Tight management of supply has helped the oil industry to keep prices high despite still weak demand. Money might not be moving to safety but gold keeps rising, up $10 to $960. The S&P rose 1.5 percent to 906.83, the dollar index firmed 0.2 percent to 80.50.
Oil rose nearly $2 to end under $65, given a special boost by drawdowns in oil and gasoline stocks. Tight management of supply has helped the oil industry to keep prices high despite still weak demand. Money might not be moving to safety but gold keeps rising, up $10 to $960. The S&P rose 1.5 percent to 906.83, the dollar index firmed 0.2 percent to 80.50.
Thursday, May 28, 2009
Durable goods orders data for April
Durable goods orders data for April were just released and show an increase of 1.9%, which is better than the 0.5% increase that was expected by economists. Meanwhile, the previous data was revised downward to reflect a 2.1% decrease. Excluding transportation, durable goods orders for April climbed 0.8%, which is better than the 0.3% decline that was widely anticipated. Durable goods orders less transporation for March were revised downward to reflect a 2.7% decrease. Separately, initial jobless claims for the week ending May 22 totaled 623,000, which was slightly below the 628,000 initial claims that were expected. Claims for the prior week were revised upward to 636,000. Meanwhile, continuing claims notched another record high by coming in at 6.79 million, which exceeds the 6.75 million continuing claims that were generally expected. Continuing claims increased 110,000 week-over-week. Both new home sales for April and first quarter mortgage delinquencies are due at 10:00 AM ET.
Wednesday, May 27, 2009
Market Reflections 5/27/2009
Existing home sales showed solid strength in April, raising chances that the worst of the housing slump is behind us. But it wasn't enough to lift the stock market which gave back much of Tuesday's gains as the S&P 500 fell 1.9 percent to 893.
The likely bankruptcy of General Motors didn't help market, but the risk, and along with it massive new layoffs, really has never sparked a flight to safety. The dollar remains near lows at just above 80 on the dollar index. Gold also has seen little benefit, continuing to hold steady at $950.
Judging by gains in oil, now over $63, the economic outlook is strong. Money moved out of the safety of Treasuries where the yield on the 5-year note rose 10 basis points to 2.40 percent. The ever building supply of Treasuries is weighing on the market though today's 5-year note auction did go very well.
The likely bankruptcy of General Motors didn't help market, but the risk, and along with it massive new layoffs, really has never sparked a flight to safety. The dollar remains near lows at just above 80 on the dollar index. Gold also has seen little benefit, continuing to hold steady at $950.
Judging by gains in oil, now over $63, the economic outlook is strong. Money moved out of the safety of Treasuries where the yield on the 5-year note rose 10 basis points to 2.40 percent. The ever building supply of Treasuries is weighing on the market though today's 5-year note auction did go very well.
Existing home sales for April
Updated: 27-May-09 10:00 ET
Existing home sales for April came in at an annualized rate of 4.7 million, which is in-line with that which was widely expected. The April rate was up modestly from the rate of 4.6 million for the prior month.
In turn, existing home sales increased 2.9% month-over-month, which is better than the 2.0% monthly increase that was expected. Home sales had slipped 3.4% month-over-month in the previous reading.
Meanwhile the House Price Index for March decreased 1.1% month-over-month. It was expected to increase 0.2% month-over-month. Meanwhile, the House Price Index for February was revised lower to reflect a 0.2% monthly increase.
Home sales and prices have been pressured in recent months by rising unemployment, despite efforts to keep mortgage rates down and tax incentives attractive. However, the better-than-expected month-over-month increase in sales has induced some knee-jerk buying in the broader market.
Existing home sales for April came in at an annualized rate of 4.7 million, which is in-line with that which was widely expected. The April rate was up modestly from the rate of 4.6 million for the prior month.
In turn, existing home sales increased 2.9% month-over-month, which is better than the 2.0% monthly increase that was expected. Home sales had slipped 3.4% month-over-month in the previous reading.
Meanwhile the House Price Index for March decreased 1.1% month-over-month. It was expected to increase 0.2% month-over-month. Meanwhile, the House Price Index for February was revised lower to reflect a 0.2% monthly increase.
Home sales and prices have been pressured in recent months by rising unemployment, despite efforts to keep mortgage rates down and tax incentives attractive. However, the better-than-expected month-over-month increase in sales has induced some knee-jerk buying in the broader market.
U.S. Home Prices Continue to Contract Sharply: No Recovery in Sight?
The S&P/Case-Shiller 20-City Composite Index fell 18.7% y/y in March 2009 as record levels of inventories and foreclosures continued to drive down home prices. All 20 cities covered in the survey showed a year-on-year decrease in prices, with 9 of the 20 areas showing rates of decline of over 20% y/y. The m/m pace of decline in March was slower than in February for 9 cities (S&P)
As of March 2009, average home prices are at similar levels to what they were in Q2 2003. From the peak in mid-2006, the 10-City Composite is down 33.1% and the 20-City Composite is down 32.2% (S&P)
As of March 2009, average home prices are at similar levels to what they were in Q2 2003. From the peak in mid-2006, the 10-City Composite is down 33.1% and the 20-City Composite is down 32.2% (S&P)
Market Reflections 5/26/2009
A second straight big surge in consumer confidence fed a big rally in the stock market where the S&P 500 rose 2.6 percent to 910. Two months of confidence gains, centered in future expectations, may point to a bottoming in the recession, but they don't point to strong recovery. General Electric offered its view, saying the global consumer is now conservative, a shift that will limit the pace of future economic growth. Still deep trouble in the housing sector will also limit the recovery. Case-Shiller data showed steady and severe rates of home-price contraction
Tuesday, May 26, 2009
Home Prices Continue Downward March
REAL ESTATE MAY 26, 2009, 10:01 A.M. ET
By KERRY E. GRACE and KEVIN KINGSBURY
U.S. home prices continued their multiyear tumble in March, according to the S&P Case-Shiller home-price indexes, as the downdraft shows no near-term signs of abating.
For the first quarter, the S&P/Case-Shiller U.S. National Home Price Index posted a 19.1% drop from a year earlier, the biggest quarterly decline for the reading's 21-year history. S&P Case-Shiller releases 10-city and 20-city indexes every month, but also releases a broader national index every quarter.
Separately, the monthly numbers showed 15 of 20 major metropolitan areas posted price declines of more than 10% from a year earlier, with the Sun Belt continuing to be hit hardest. Nationally, home prices are at levels similar to the fourth quarter of 2002.
David M. Blitzer, chairman of S&P's index committee, noted that March was only the second time since October 2007 that both the 10- and 20-city index didn't report record annual price declines.
More
Sortable Chart: Home Prices, by Metro Area Developments: How to Invest in Foreclosures Econ Newsletter: Click here to sign up Still, three of the 20 metro areas reported record monthly declines: Minneapolis, Detroit and New York. Minneapolis had a 6.1% drop just in March, the biggest-ever monthly decline measured by the index.
The indexes showed prices in 10 major metropolitan areas fell 18.6% in March from a year earlier and 2.1% from February. In 20 major metropolitan areas, home prices dropped 18.7% from the prior year and 2.2% from February.
Two regions reported a slight price increase in March from a month earlier: Charlotte and Denver. A third, Dallas, was flat. Also, nine of the 20 areas reported better month-to-month results in March than February.
For the 12th straight month, no region was able to avoid a year-over-year decline. Phoenix and Las Vegas were again the worst performers, with drops of 36% and 31%, respectively. Phoenix is down 53% from its peak in June 2006. Dallas has been the least hurt, down 11% from its June 2007 peak.
Write to Kerry E. Grace at kerry.grace@dowjones.com and Kevin Kingsbury at kevin.kingsbury@dowjones.com
By KERRY E. GRACE and KEVIN KINGSBURY
U.S. home prices continued their multiyear tumble in March, according to the S&P Case-Shiller home-price indexes, as the downdraft shows no near-term signs of abating.
For the first quarter, the S&P/Case-Shiller U.S. National Home Price Index posted a 19.1% drop from a year earlier, the biggest quarterly decline for the reading's 21-year history. S&P Case-Shiller releases 10-city and 20-city indexes every month, but also releases a broader national index every quarter.
Separately, the monthly numbers showed 15 of 20 major metropolitan areas posted price declines of more than 10% from a year earlier, with the Sun Belt continuing to be hit hardest. Nationally, home prices are at levels similar to the fourth quarter of 2002.
David M. Blitzer, chairman of S&P's index committee, noted that March was only the second time since October 2007 that both the 10- and 20-city index didn't report record annual price declines.
More
Sortable Chart: Home Prices, by Metro Area Developments: How to Invest in Foreclosures Econ Newsletter: Click here to sign up Still, three of the 20 metro areas reported record monthly declines: Minneapolis, Detroit and New York. Minneapolis had a 6.1% drop just in March, the biggest-ever monthly decline measured by the index.
The indexes showed prices in 10 major metropolitan areas fell 18.6% in March from a year earlier and 2.1% from February. In 20 major metropolitan areas, home prices dropped 18.7% from the prior year and 2.2% from February.
Two regions reported a slight price increase in March from a month earlier: Charlotte and Denver. A third, Dallas, was flat. Also, nine of the 20 areas reported better month-to-month results in March than February.
For the 12th straight month, no region was able to avoid a year-over-year decline. Phoenix and Las Vegas were again the worst performers, with drops of 36% and 31%, respectively. Phoenix is down 53% from its peak in June 2006. Dallas has been the least hurt, down 11% from its June 2007 peak.
Write to Kerry E. Grace at kerry.grace@dowjones.com and Kevin Kingsbury at kevin.kingsbury@dowjones.com
Saturday, May 23, 2009
Weekly Market Update (5/22/09)
HEADLINE NEWS WEEK ENDING 5/22/09
Overview
The US Treasury market sold off this week on concerns about a potential downgrade of US government debt by the credit ratings agencies. more...http://payden.com/library/weeklyMarketUpdateE.aspx
US MARKETS
Treasury/Economics
US Treasuries sold off this week pushing 10-year and 30-year Treasuries to their highest yield levels for the year as investors are preparing for the upcoming supply next week in US 2-year, 5-year and 7-year securities. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Large-Cap Equities
The stock market rallied this week on rising energy prices. Crude oil rose to its highest level in six months, ending the week at about $60 a barrel. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Corporate Bonds
Investment grade primary activity continued to rush to the market as issuers were looking to take advantage of improving sentiments and what seems to be a never-ending longing for yield in the credit market. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Mortgage-Backed Securities
The agency mortgage market sold off this week, yet traded very well relative to the Treasury market which saw prices reach six-month lows. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Municipal Bonds
Municipal bond market yields fell over the course of the last week and, in particular, longer maturities continued to outperform the rest of the market. more..http://payden.com/library/weeklyMarketUpdateE.aspx.
High-Yield
After a slight pullback in the high yield market in the preceding week, high yield bonds bounced back nicely, tightening in 55 bps relative to Treasuries and gaining roughly 2% for the week ending May 22. more...http://payden.com/library/weeklyMarketUpdateE.aspx
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The sectors with the best performance were basic resources (+9.7%) and banks (+8.7%). more...http://payden.com/library/weeklyMarketUpdateE.aspx
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +7.5% this week, while the Russian stock index RTS went up +8.2%. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Global Bonds and Currencies
For major sovereign bond markets, the past week brought losses as attention focused on the sharp deterioration in the fiscal positions of the US and the UK. more..http://payden.com/library/weeklyMarketUpdateE.aspx.
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. Although risk markets were mixed, the lack of negative economic data and a back-up in US Treasury yields caused credit spreads to move lower. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Overview
The US Treasury market sold off this week on concerns about a potential downgrade of US government debt by the credit ratings agencies. more...http://payden.com/library/weeklyMarketUpdateE.aspx
US MARKETS
Treasury/Economics
US Treasuries sold off this week pushing 10-year and 30-year Treasuries to their highest yield levels for the year as investors are preparing for the upcoming supply next week in US 2-year, 5-year and 7-year securities. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Large-Cap Equities
The stock market rallied this week on rising energy prices. Crude oil rose to its highest level in six months, ending the week at about $60 a barrel. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Corporate Bonds
Investment grade primary activity continued to rush to the market as issuers were looking to take advantage of improving sentiments and what seems to be a never-ending longing for yield in the credit market. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Mortgage-Backed Securities
The agency mortgage market sold off this week, yet traded very well relative to the Treasury market which saw prices reach six-month lows. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Municipal Bonds
Municipal bond market yields fell over the course of the last week and, in particular, longer maturities continued to outperform the rest of the market. more..http://payden.com/library/weeklyMarketUpdateE.aspx.
High-Yield
After a slight pullback in the high yield market in the preceding week, high yield bonds bounced back nicely, tightening in 55 bps relative to Treasuries and gaining roughly 2% for the week ending May 22. more...http://payden.com/library/weeklyMarketUpdateE.aspx
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The sectors with the best performance were basic resources (+9.7%) and banks (+8.7%). more...http://payden.com/library/weeklyMarketUpdateE.aspx
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +7.5% this week, while the Russian stock index RTS went up +8.2%. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Global Bonds and Currencies
For major sovereign bond markets, the past week brought losses as attention focused on the sharp deterioration in the fiscal positions of the US and the UK. more..http://payden.com/library/weeklyMarketUpdateE.aspx.
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. Although risk markets were mixed, the lack of negative economic data and a back-up in US Treasury yields caused credit spreads to move lower. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Friday, May 22, 2009
Is Mr. Geithner speaking today?
Thank to Jack Crooks. This is a MUST READ RANT!
http://www.blackswantrading.com/files/articles/5b3a61794823258ee9df38f59319d335bsccc052209.pdf
FX Trading – Dollar Shrug! No surprise. Is Mr. Geithner speaking today? He is becoming such a joy for dollar bears, as John Ross mentioned in his closing to CC yesterday. And the dollar doom and gloom crowd is smelling blood in the water; rightly so! There are a lot of short dollar trades on it seems. We surmise Pimco has a big dollar short position given Bond King Bill Gross’s recent public musing about the US may lose its AAA rating. Comments like that shouldn’t be a surprise to anyone given the US government’s desire to take on the role of global stimulus King instead of just worrying about getting its own house in order—pathetic! Mr. Geithner says the US depends on other countries to grow and chastises them for not throwing enough of their taxpayers’ money into the “stimulus” program. Maybe he should take a look at that before he speaks…Of course the crony insiders tell us how “smart” Mr. Geithner is, and we don’t doubt his intelligence. Anyone that can avoid paying personal income taxes and still pull-off an appointment to Treasury Secretary (and run the IRS) is pretty smart. But our gripe is the fact that the guy instills negative confidence in the market place not because he lacks “leadership qualities,” as some have suggested, but because his economics seems all screwed up in my most humble opinion. We are in a gut wrenching transition in the global economy because the wildest orgy of debt the world has ever seen is over. Thus, excesses across all sectors, especially financial, must be removed from the marketplace in order for real quality long-term globally balanced growth to take hold. Instead, day after day we witness dinosaur saving from Geithner and friends, while stunningly they tell us this with a straight face (as straight as any government official possibly can) that we need to put more debt into the market in order to solve the problem of too much debt being in the market. Mr. Orwell call your office!
Now granted, few of us have toiled away at the top economic Ivy League institutions and rubbed elbows and other things against the top seers. Granted, we don’t have the luxury of feeding our ideas and inputs into the most sophisticated econometrics models imaginable built of course by the “best and brightest.” But it seems our angst grows from something the power elites don’t have—common sense. Putting more debt into a system desperately working to alleviate debt is just plain stupid no matter how the Neo-Keynesians slice or dice it. Is it any wonder why the globe is losing confidence in the dollar? It seems the guys that are supposed to be on our side consistently cow-tow to the other side. And of course, you know where I’m going here—China. It is farcical when China criticizes the US for overconsumption and not saving enough. They were enriched precisely because of the overconsumption, besides playing our multi-national “leaders” like a violin by offering cheap labor and short-term riches in turn for giving them technology which sooner or later will lead to the wiping out western business and sunk shareholder value as we know it. But that is another story for another day. The symbiotic game of China shipping containers full of stuff to the US for Federal Reserve Notes dwindling in value ended with the credit crunch. And guess which of the two formerly symbiotic players is getting crunched harder—if you said China you would have been right. But, in their Orwellian world of global chess, the Chinese pretend they are outperforming anything that moves. And their noises and lies and bluffs and fake economic numbers cannot deny the fact that if Mr. US Consumer does not get this symbiotic game of dollars for stuff going again, the Politburo may be out of a job—literally thrown out of a job, if you know what I mean. So, instead of realizing this upper hand of consumer demand the US possesses, the US government economic “leaders” agree with China that yes—it is highly important to stimulate the globe, we want 2001 again. If successful it would mean China continues to add global market share to their manufacturing behemoth and can avoid the dirty hard job of developing a domestic market.
Jack Crooks, Black Swan Capital LLC
www.blackswantrading.com
Black Swan Capital’s Currency Currents is strictly an informational publication and does not provide individual, customized
investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed
disclaimer can be found at http://www.blackswantrading.com/disclaimer.html
Please read the whole article here:http://www.blackswantrading.com/files/articles/5b3a61794823258ee9df38f59319d335bsccc052209.pdf
http://www.blackswantrading.com/files/articles/5b3a61794823258ee9df38f59319d335bsccc052209.pdf
FX Trading – Dollar Shrug! No surprise. Is Mr. Geithner speaking today? He is becoming such a joy for dollar bears, as John Ross mentioned in his closing to CC yesterday. And the dollar doom and gloom crowd is smelling blood in the water; rightly so! There are a lot of short dollar trades on it seems. We surmise Pimco has a big dollar short position given Bond King Bill Gross’s recent public musing about the US may lose its AAA rating. Comments like that shouldn’t be a surprise to anyone given the US government’s desire to take on the role of global stimulus King instead of just worrying about getting its own house in order—pathetic! Mr. Geithner says the US depends on other countries to grow and chastises them for not throwing enough of their taxpayers’ money into the “stimulus” program. Maybe he should take a look at that before he speaks…Of course the crony insiders tell us how “smart” Mr. Geithner is, and we don’t doubt his intelligence. Anyone that can avoid paying personal income taxes and still pull-off an appointment to Treasury Secretary (and run the IRS) is pretty smart. But our gripe is the fact that the guy instills negative confidence in the market place not because he lacks “leadership qualities,” as some have suggested, but because his economics seems all screwed up in my most humble opinion. We are in a gut wrenching transition in the global economy because the wildest orgy of debt the world has ever seen is over. Thus, excesses across all sectors, especially financial, must be removed from the marketplace in order for real quality long-term globally balanced growth to take hold. Instead, day after day we witness dinosaur saving from Geithner and friends, while stunningly they tell us this with a straight face (as straight as any government official possibly can) that we need to put more debt into the market in order to solve the problem of too much debt being in the market. Mr. Orwell call your office!
Now granted, few of us have toiled away at the top economic Ivy League institutions and rubbed elbows and other things against the top seers. Granted, we don’t have the luxury of feeding our ideas and inputs into the most sophisticated econometrics models imaginable built of course by the “best and brightest.” But it seems our angst grows from something the power elites don’t have—common sense. Putting more debt into a system desperately working to alleviate debt is just plain stupid no matter how the Neo-Keynesians slice or dice it. Is it any wonder why the globe is losing confidence in the dollar? It seems the guys that are supposed to be on our side consistently cow-tow to the other side. And of course, you know where I’m going here—China. It is farcical when China criticizes the US for overconsumption and not saving enough. They were enriched precisely because of the overconsumption, besides playing our multi-national “leaders” like a violin by offering cheap labor and short-term riches in turn for giving them technology which sooner or later will lead to the wiping out western business and sunk shareholder value as we know it. But that is another story for another day. The symbiotic game of China shipping containers full of stuff to the US for Federal Reserve Notes dwindling in value ended with the credit crunch. And guess which of the two formerly symbiotic players is getting crunched harder—if you said China you would have been right. But, in their Orwellian world of global chess, the Chinese pretend they are outperforming anything that moves. And their noises and lies and bluffs and fake economic numbers cannot deny the fact that if Mr. US Consumer does not get this symbiotic game of dollars for stuff going again, the Politburo may be out of a job—literally thrown out of a job, if you know what I mean. So, instead of realizing this upper hand of consumer demand the US possesses, the US government economic “leaders” agree with China that yes—it is highly important to stimulate the globe, we want 2001 again. If successful it would mean China continues to add global market share to their manufacturing behemoth and can avoid the dirty hard job of developing a domestic market.
Jack Crooks, Black Swan Capital LLC
www.blackswantrading.com
Black Swan Capital’s Currency Currents is strictly an informational publication and does not provide individual, customized
investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed
disclaimer can be found at http://www.blackswantrading.com/disclaimer.html
Please read the whole article here:http://www.blackswantrading.com/files/articles/5b3a61794823258ee9df38f59319d335bsccc052209.pdf
Market Reflections 5/21/2009
Warnings that the UK may lose its AAA rating raised questions over the risks of government stimulus and the effects of the recession -- not only in the UK but also here in the United States. Money fled offshore in a rare triple flop: stocks down, Treasuries down, and the dollar down. Jobless claims didn't boost any optimism showing little if any improvement in the labor market.
The bad news pushed the S&P 500 down 1.7 percent to 888.34, but funds didn't move into Treasuries where yields instead moved higher, up a very sharp 18 basis points on the 10-year to 3.37 percent. The dollar confirmed the exodus, falling 0.8 percent to 80.57 at day's end for the dollar index. The decline in the dollar, and with it the associated risk of inflation, gave a boost to commodities including oil, firmly above $60, and copper, firmly above $2. The bad news gave gold a boost, which at a hefty $954 is getting a boost from worries that economic conditions may not be on the mend after all.
The bad news pushed the S&P 500 down 1.7 percent to 888.34, but funds didn't move into Treasuries where yields instead moved higher, up a very sharp 18 basis points on the 10-year to 3.37 percent. The dollar confirmed the exodus, falling 0.8 percent to 80.57 at day's end for the dollar index. The decline in the dollar, and with it the associated risk of inflation, gave a boost to commodities including oil, firmly above $60, and copper, firmly above $2. The bad news gave gold a boost, which at a hefty $954 is getting a boost from worries that economic conditions may not be on the mend after all.
Thursday, May 21, 2009
Jobless Claims
Released on 5/21/2009 8:30:00 AM For wk5/16, 2009
Previous Consensus Consensus Range Actual
New Claims - Level 637 K 645 K 620 K to 675 K 631 K
Market Consensus Before Announcement
Initial jobless claims for the May 9 week jumped 32,000 to a 637,000. The surge in claims likely reflected auto sector layoffs. But continuing claims were even worse for the May 2 week, soaring 202,000 to 6.560 million, the 17th straight rise and another record high.
Definition
New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing (decreasing) trend suggests a deteriorating (improving) labor market. The four-week moving average of new claims smoothes out weekly volatility.
Jobless Claims
Definition
New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing (decreasing) trend suggests a deteriorating (improving) labor market. The four-week moving average of new claims smoothes out weekly volatility.
Why Investor's Care
Jobless claims are an easy way to gauge the strength of the job market. The fewer people filing for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy. Nearly every job comes with an income that gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so a stronger job market generates a healthier economy.
There's a downside to it, though. Unemployment claims, and therefore the number of job seekers, can fall to such a low level that businesses have a tough time finding new workers. They might have to pay overtime wages to current staff, use higher wages to lure people from other jobs, and in general spend more on labor costs because of a shortage of workers. This leads to wage inflation, which is bad news for the stock and bond markets. Federal Reserve officials are always on the look out for inflationary pressures.
By tracking the number of jobless claims, investors can gain a sense of how tight, or how loose, the job market is. If wage inflation threatens, it's a good bet that interest rates will rise, bond and stock prices will fall, and the only investors in a good mood will be the ones who tracked jobless claims and adjusted their portfolios to anticipate these events.
Just remember, the lower the number of unemployment claims, the stronger the job market, and vice versa.
Frequency
Weekly
Revisions
Weekly, data for previous week are revised to reflect more complete information.
Previous Consensus Consensus Range Actual
New Claims - Level 637 K 645 K 620 K to 675 K 631 K
Market Consensus Before Announcement
Initial jobless claims for the May 9 week jumped 32,000 to a 637,000. The surge in claims likely reflected auto sector layoffs. But continuing claims were even worse for the May 2 week, soaring 202,000 to 6.560 million, the 17th straight rise and another record high.
Definition
New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing (decreasing) trend suggests a deteriorating (improving) labor market. The four-week moving average of new claims smoothes out weekly volatility.
Jobless Claims
Definition
New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing (decreasing) trend suggests a deteriorating (improving) labor market. The four-week moving average of new claims smoothes out weekly volatility.
Why Investor's Care
Jobless claims are an easy way to gauge the strength of the job market. The fewer people filing for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy. Nearly every job comes with an income that gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so a stronger job market generates a healthier economy.
There's a downside to it, though. Unemployment claims, and therefore the number of job seekers, can fall to such a low level that businesses have a tough time finding new workers. They might have to pay overtime wages to current staff, use higher wages to lure people from other jobs, and in general spend more on labor costs because of a shortage of workers. This leads to wage inflation, which is bad news for the stock and bond markets. Federal Reserve officials are always on the look out for inflationary pressures.
By tracking the number of jobless claims, investors can gain a sense of how tight, or how loose, the job market is. If wage inflation threatens, it's a good bet that interest rates will rise, bond and stock prices will fall, and the only investors in a good mood will be the ones who tracked jobless claims and adjusted their portfolios to anticipate these events.
Just remember, the lower the number of unemployment claims, the stronger the job market, and vice versa.
Frequency
Weekly
Revisions
Weekly, data for previous week are revised to reflect more complete information.
Industrial Production In and Out of Recession
Industrial production plays a key cyclical role
Industrial production is more cyclical than the economy on average. That is, it falls further during recession and jumps more during recovery. The current recession started in January 2008 (with the prior expansion peaking in December 2007). How does this manufacturing recession compare to recent recessions? Is this the worst manufacturing recession since the end of World War II? And which industries have been hit the hardest and which have fared the best?
Different cyclical patterns
Recent recessions have followed different patterns. Thus far, the current recession in manufacturing is most like the 1973-75 recession. However, the 1973-75 saw an upturn in manufacturing 19 months after the peak. With one major auto producer in bankruptcy and another likely, it is not a good bet that manufacturing in this recession will begin recovery by July. Adding to this improbability is the downturn in exports, falling demand for construction supplies, and no pickup in consumer demand.
Both the 1990-91 and 2001 recessions were shallow and relatively short. It is interesting that the Fed has cut interest rates even more this recession than during the 2001 recession but the economy has responded less this time around. This speaks volumes on how different the current recession is – being more of a credit crunch than a simple downturn in demand and output.
The two years of data for the 1980 recession looks like a roller coaster. Not only did the 1980 recession (induced by oil price shocks to a large degree) end quickly, but it also fell back into recession within that two year period (including a portion of the 1981-82 recession) due to extreme Fed tightening.
Overall, there has not been any typical recession in manufacturing going back to 1972. But the current recession certainly is worst thus far and even is likely the worst since the end of World War II.
The hardest hit industry by market groups is consumer autos, down 34.5 percent since the end of expansion. Housing pulled down output sharply for appliances, furniture & carpeting, down 24.8 percent, and construction supplies, down 22.6 percent. On the business side of market groups, transit equipment fell 21.1 percent over the recession.
Some industries actually have not been touched much by the recession. These have been nondurables. One industry – energy – even posted a net gain of 1.7 percent over the 16 month recession period. The nondurables groups that fell little were chemical products, down 2.9 percent, and food & tobacco, down 3.2 percent. But demand has fallen for clothing and paper products with output for those groups down 14.9 percent and 10.0 percent, respectively.
Bottom Line
Indeed, the current recession for manufacturing is the worst in decades. Traditionally, the industries hardest hit during recession often rebound the most during recovery. Is that likely this time? With credit more restricted, the auto sector may not make as much of a comeback as is typical – even with interest rates so low. Tighter credit standards may cause construction industries to lag this time – notably those related to building new housing. But when home purchases do pick up, industries such as carpeting and appliances may do relatively well because they can improve along with existing home sales. Finally, if overseas economies – especially in Asia – rebound soon, we could see a rise in output for industries such as transit, industrial equipment, paper, and chemicals. Every recession and recovery in manufacturing has been different and that will likely be true this go around, too.
Industrial production is more cyclical than the economy on average. That is, it falls further during recession and jumps more during recovery. The current recession started in January 2008 (with the prior expansion peaking in December 2007). How does this manufacturing recession compare to recent recessions? Is this the worst manufacturing recession since the end of World War II? And which industries have been hit the hardest and which have fared the best?
Different cyclical patterns
Recent recessions have followed different patterns. Thus far, the current recession in manufacturing is most like the 1973-75 recession. However, the 1973-75 saw an upturn in manufacturing 19 months after the peak. With one major auto producer in bankruptcy and another likely, it is not a good bet that manufacturing in this recession will begin recovery by July. Adding to this improbability is the downturn in exports, falling demand for construction supplies, and no pickup in consumer demand.
Both the 1990-91 and 2001 recessions were shallow and relatively short. It is interesting that the Fed has cut interest rates even more this recession than during the 2001 recession but the economy has responded less this time around. This speaks volumes on how different the current recession is – being more of a credit crunch than a simple downturn in demand and output.
The two years of data for the 1980 recession looks like a roller coaster. Not only did the 1980 recession (induced by oil price shocks to a large degree) end quickly, but it also fell back into recession within that two year period (including a portion of the 1981-82 recession) due to extreme Fed tightening.
Overall, there has not been any typical recession in manufacturing going back to 1972. But the current recession certainly is worst thus far and even is likely the worst since the end of World War II.
The hardest hit industry by market groups is consumer autos, down 34.5 percent since the end of expansion. Housing pulled down output sharply for appliances, furniture & carpeting, down 24.8 percent, and construction supplies, down 22.6 percent. On the business side of market groups, transit equipment fell 21.1 percent over the recession.
Some industries actually have not been touched much by the recession. These have been nondurables. One industry – energy – even posted a net gain of 1.7 percent over the 16 month recession period. The nondurables groups that fell little were chemical products, down 2.9 percent, and food & tobacco, down 3.2 percent. But demand has fallen for clothing and paper products with output for those groups down 14.9 percent and 10.0 percent, respectively.
Bottom Line
Indeed, the current recession for manufacturing is the worst in decades. Traditionally, the industries hardest hit during recession often rebound the most during recovery. Is that likely this time? With credit more restricted, the auto sector may not make as much of a comeback as is typical – even with interest rates so low. Tighter credit standards may cause construction industries to lag this time – notably those related to building new housing. But when home purchases do pick up, industries such as carpeting and appliances may do relatively well because they can improve along with existing home sales. Finally, if overseas economies – especially in Asia – rebound soon, we could see a rise in output for industries such as transit, industrial equipment, paper, and chemicals. Every recession and recovery in manufacturing has been different and that will likely be true this go around, too.
Market Reflections 5/20/2009
Hedge fund money continues to move into commodities, pushing oil to $62 and gold to $935. Commodities from grains to base metals are all benefiting. A big reason for the move is weakness in the dollar which ended near its lowest levels of the year, at $1.3768 against the euro. Weakening demand for the dollar is tied to inflationary expectations, against which commodities are used as a hedge. The S&P 500 ended at its lows, down 0.5 percent at just over 900. News in the session was headed by FOMC minutes where economic assumptions were cut and that show some policy makers think they may need to further increase their quantitative easing program.
Wednesday, May 20, 2009
Market Reflections 5/19/2009
Housing starts fell a very steep 12.8 percent in April, a reminder that the sea of unsold homes will hold down homebuilders even as sales improve. But the data didn't move the markets with the S&P 500 ending little changed just under 910.
Oil is moving higher, nearing $60 and raising talk of last year's $40-to-$147 super spike. But gold, at $925, is holding steady, enjoying two-edged strength as an inflation hedge against price demand tied to cyclical recovery or the hyperinflation of the doom-and-gloomers.
Oil is moving higher, nearing $60 and raising talk of last year's $40-to-$147 super spike. But gold, at $925, is holding steady, enjoying two-edged strength as an inflation hedge against price demand tied to cyclical recovery or the hyperinflation of the doom-and-gloomers.
The Price of Things
Precious metals all climb - Sell in May and go away?
Dollar prolongs decline - Housing starts at record low.
Crude nudges higher - EIA report seen boosting inventories.
Base metals mixed - Poor housing numbers fail to knock copper into red.
The Price of Things
Resource Last 1 Week Ago 3 Months Ago 1 Year Ago
Gold 924.40 922.80 974.30 906.00
Silver 14.18 14.21 14.04 16.99
Platinum 1137.00 1129.00 1065.00 2148.00
Palladium 232.00 232.00 214.00 450.00
Copper 2.05 2.06 1.47 3.82
Nickel 5.63 5.84 4.42 11.73
Zinc 0.50 0.50 0.50 1.02
Uranium 51.00 46.00 47.00 60.00
Oil 58.86 58.01 41.70 125.39
Gas 3.94 4.48 4.07 10.94
Dollar prolongs decline - Housing starts at record low.
Crude nudges higher - EIA report seen boosting inventories.
Base metals mixed - Poor housing numbers fail to knock copper into red.
The Price of Things
Resource Last 1 Week Ago 3 Months Ago 1 Year Ago
Gold 924.40 922.80 974.30 906.00
Silver 14.18 14.21 14.04 16.99
Platinum 1137.00 1129.00 1065.00 2148.00
Palladium 232.00 232.00 214.00 450.00
Copper 2.05 2.06 1.47 3.82
Nickel 5.63 5.84 4.42 11.73
Zinc 0.50 0.50 0.50 1.02
Uranium 51.00 46.00 47.00 60.00
Oil 58.86 58.01 41.70 125.39
Gas 3.94 4.48 4.07 10.94
Tuesday, May 19, 2009
The End Game Draws Nigh - The Future Evolution of the Debt-to-GDP Ratio
Nearly everyone I talk with has the sense that we are at some critical point in our economic and national paths, not just in the US but in the world. One path will lead us back to relative growth and another set of choices leads us down a path which will put a very real drag on economic growth and recovery. For most of us, there is very little we can do (besides vote and lobby) about the actual choices. What we can do is adjust our personal portfolios to be synchronized with the direction of the economy. The question is "What will that direction be?"
Today we are going to look at what I think is a very clear roadmap given to us by Dr. Woody Brock, the head of Strategic Economic Decisions and one of the smartest analysts I have come in contact with over the years, in his recent essay, "The End Games Draws Nigh." For those who have the contacts in government, I urge you to put this piece into the correct hands so that Woody's very distinct message gets out.
In my own simple terms, trees cannot grow in some unlimited manner to the sky. Families cannot grow debt without limit beyond the growth of their incomes. And countries have the same constraints. While growth of debt in the short term is viable, growth of debt faster than the growth of GDP is not viable over the long run. This is not debatable. It is a simple fact. Therefore, as Woody says, it is important that you get the growth side of the equation right as you increase the debt side. Without the proper balance, you are heading for disaster.
From his intro:
"We weave these three concepts together so as to make possible an extension and generalization of "macroeconomic policy" as normally understood. Central to this extension is the need for policies that drive down the nation's Debt-to-GDP Ratio over time. Accordingly, we identify 15 policies that jointly reduce the growth of federal debt and increase the growth of GDP over time. Doing so not only points to a new set of policies for exiting today's quagmire, but also permits an appraisal of the Obama administration's current policy proposals. Regrettably these proposals do not fare well with respect to growth. Furthermore, the extension of macroeconomics we propose applies not only to the US economy, but to most all others as well. It should thus be of interest to readers everywhere."
This will require you to put on your thinking cap. But you need to digest this, and especially the conclusions. But it is very important that you understand the principles and concepts Woody discusses. We are at a very critical juncture, and the paths we choose will have profound impacts on our lives and fortunes. I cannot overemphasize the point. If we choose a path of growing debt faster than we can grow GDP, the negative implications for many traditional asset classes are enormous.
Today we are going to look at what I think is a very clear roadmap given to us by Dr. Woody Brock, the head of Strategic Economic Decisions and one of the smartest analysts I have come in contact with over the years, in his recent essay, "The End Games Draws Nigh." For those who have the contacts in government, I urge you to put this piece into the correct hands so that Woody's very distinct message gets out.
In my own simple terms, trees cannot grow in some unlimited manner to the sky. Families cannot grow debt without limit beyond the growth of their incomes. And countries have the same constraints. While growth of debt in the short term is viable, growth of debt faster than the growth of GDP is not viable over the long run. This is not debatable. It is a simple fact. Therefore, as Woody says, it is important that you get the growth side of the equation right as you increase the debt side. Without the proper balance, you are heading for disaster.
From his intro:
"We weave these three concepts together so as to make possible an extension and generalization of "macroeconomic policy" as normally understood. Central to this extension is the need for policies that drive down the nation's Debt-to-GDP Ratio over time. Accordingly, we identify 15 policies that jointly reduce the growth of federal debt and increase the growth of GDP over time. Doing so not only points to a new set of policies for exiting today's quagmire, but also permits an appraisal of the Obama administration's current policy proposals. Regrettably these proposals do not fare well with respect to growth. Furthermore, the extension of macroeconomics we propose applies not only to the US economy, but to most all others as well. It should thus be of interest to readers everywhere."
This will require you to put on your thinking cap. But you need to digest this, and especially the conclusions. But it is very important that you understand the principles and concepts Woody discusses. We are at a very critical juncture, and the paths we choose will have profound impacts on our lives and fortunes. I cannot overemphasize the point. If we choose a path of growing debt faster than we can grow GDP, the negative implications for many traditional asset classes are enormous.
A Trader's Best Friend
By Brian Hunt, Editor in Chief, Stansberry Research
Of all the friends in the world a trader can have, one of the most valuable is the concept of position sizing – a strategy that tells you how much money to put into a given trade.
Most great traders will tell you to never risk more than 2% of your trading capital on any one position. One percent is better for most folks. A half a percent is also good.
So here's how the math works...
Let's say you're a trader with a $50,000 "grubstake." And you're thinking about buying Intel at $20 per share.
How many shares should you buy? Buy too much and you could suffer catastrophic damage if, say, an accounting scandal strikes Intel. Buy too little and you're not capitalizing on your great idea.
Here's where intelligent position sizing comes in. Here's where the concept of "R" comes into play.
"R" is the amount of money you're willing to risk on any one position. You can easily calculate R from two other numbers: 1) your total account size and 2) the percent of your account you'll risk on any given position.
Let's say you want to go "middle of the road" with your risk tolerance. You're going to risk 1% of your $50,000 account on each idea. Your R is $500. (If you wanted to dial up your risk to 2% of your account, R would be $1,000.)
OK, so you've already decided you want to put a 25% protective stop loss on your Intel position. Now you can work backward and determine how many shares to buy.
Your first step is always to divide 100 by your stop loss number: 100/25 = 4.
Now, take that number and multiply it by your R: 4 x $500 = $2,000.
So you should buy $2,000 worth of Intel... At $20 per share, that's 100 shares. If Intel declines 25%, you'll lose $500 and exit the position.
That's it. That's all it takes to practice intelligent position sizing.
Now... what if you want to use a tighter stop loss, say 10% on your Intel position? Let's do the math...
100/10 (your stop loss percentage) = 10
10 x $500 (your R) = $5,000
$5,000/$20 (share price) = 250 shares
Tighter stop loss, same amount of risk, same R of $500.
Now let's say you'd like to trade Intel options. You're bullish, so you're going to buy Intel calls. The options you want to buy are $2. Yahoo lists options prices by price per share, but option contracts are for 100 shares... So one of your option contracts will cost $200.
A straight call option position is much more volatile than a straight stock position. So you could set a wide stop loss of 50% on your call position. A wider stop will mean a smaller position size. Take a look:
100/50 (your stop loss percentage) = 2
2 x $500 (your R) = $1,000
$1,000/$200 (price per call option) = 5 option contracts
Different stop loss, different position size, different kind of asset, same R of $500.
You can use the concept of R to "normalize" risk for any kind of position... from crude oil futures to currencies to microcaps to Microsoft. If you're trading a riskier, more volatile asset, increase your stop-loss percentage, decrease your position size, and keep your R steady. That way, you're risking exactly as much money on each of your ideas.
Our examples put R at 1% of your total portfolio size. Folks new to the trading game would be smart to start with 0.5% of their account. That way, you can be wrong 10 times in a row and lose just 5% of your account.
To have the importance of intelligent position sizing drilled into your head over and over again by the best traders ever, read Market Wizards by Jack Schwager. For a fuller explanation of R and intelligent position sizing, read Trade Your Way to Financial Freedom by Van K. Tharp. Both are incredibly important books for traders.
Good trading,
Brian
Of all the friends in the world a trader can have, one of the most valuable is the concept of position sizing – a strategy that tells you how much money to put into a given trade.
Most great traders will tell you to never risk more than 2% of your trading capital on any one position. One percent is better for most folks. A half a percent is also good.
So here's how the math works...
Let's say you're a trader with a $50,000 "grubstake." And you're thinking about buying Intel at $20 per share.
How many shares should you buy? Buy too much and you could suffer catastrophic damage if, say, an accounting scandal strikes Intel. Buy too little and you're not capitalizing on your great idea.
Here's where intelligent position sizing comes in. Here's where the concept of "R" comes into play.
"R" is the amount of money you're willing to risk on any one position. You can easily calculate R from two other numbers: 1) your total account size and 2) the percent of your account you'll risk on any given position.
Let's say you want to go "middle of the road" with your risk tolerance. You're going to risk 1% of your $50,000 account on each idea. Your R is $500. (If you wanted to dial up your risk to 2% of your account, R would be $1,000.)
OK, so you've already decided you want to put a 25% protective stop loss on your Intel position. Now you can work backward and determine how many shares to buy.
Your first step is always to divide 100 by your stop loss number: 100/25 = 4.
Now, take that number and multiply it by your R: 4 x $500 = $2,000.
So you should buy $2,000 worth of Intel... At $20 per share, that's 100 shares. If Intel declines 25%, you'll lose $500 and exit the position.
That's it. That's all it takes to practice intelligent position sizing.
Now... what if you want to use a tighter stop loss, say 10% on your Intel position? Let's do the math...
100/10 (your stop loss percentage) = 10
10 x $500 (your R) = $5,000
$5,000/$20 (share price) = 250 shares
Tighter stop loss, same amount of risk, same R of $500.
Now let's say you'd like to trade Intel options. You're bullish, so you're going to buy Intel calls. The options you want to buy are $2. Yahoo lists options prices by price per share, but option contracts are for 100 shares... So one of your option contracts will cost $200.
A straight call option position is much more volatile than a straight stock position. So you could set a wide stop loss of 50% on your call position. A wider stop will mean a smaller position size. Take a look:
100/50 (your stop loss percentage) = 2
2 x $500 (your R) = $1,000
$1,000/$200 (price per call option) = 5 option contracts
Different stop loss, different position size, different kind of asset, same R of $500.
You can use the concept of R to "normalize" risk for any kind of position... from crude oil futures to currencies to microcaps to Microsoft. If you're trading a riskier, more volatile asset, increase your stop-loss percentage, decrease your position size, and keep your R steady. That way, you're risking exactly as much money on each of your ideas.
Our examples put R at 1% of your total portfolio size. Folks new to the trading game would be smart to start with 0.5% of their account. That way, you can be wrong 10 times in a row and lose just 5% of your account.
To have the importance of intelligent position sizing drilled into your head over and over again by the best traders ever, read Market Wizards by Jack Schwager. For a fuller explanation of R and intelligent position sizing, read Trade Your Way to Financial Freedom by Van K. Tharp. Both are incredibly important books for traders.
Good trading,
Brian
Shiller: Now You Can Short Housing
Friday, May 15, 2009 4:58 PM
By: Dan Weil Article Font Size
While the government is going through conniptions trying to stop investors from shorting stocks, housing guru and economist Robert Shiller is going the other direction.
He’s providing a security for investors to short the Case-Shiller home-price index. His firm MacroMarkets recently received approval for exchange-traded traded funds based on the index.
“One reason we have bubbles in the housing market is because there's been no way to short housing,” the Yale professor tells Time.
“The ability to short is essential to an efficient market, otherwise there's nothing to stop zealots from pricing things abnormally high.”
One version of the ETF (UMM) allows investors to buy the index.
“It's like buying a house, except you don't have to go through the real estate agent, take possession of a property, maintain it, rent it out,” Shiller says.
The other offering (DMM) provides an opportunity to short the index.
“Markets like this will also create an infrastructure for products,” Shiller says. “For example, insurers could issue home-equity insurance and then hedge themselves by taking a position in this market.”
As for housing’s current status, Shiller doesn’t think the market has bottomed.
“The conspicuous fact with our [Case-Shiller] data is that prices are still falling, although at a somewhat lower rate,” he explains.
Mark Zandi, chief economist of Economy.com, puts it in only slightly more optimistic terms.
“I think we’re clearly moving in the right direction,” he tells Bloomberg TV. “I think a year from now we’ll find a bottom.”
© 2009 Newsmax. All rights reserved.
By: Dan Weil Article Font Size
While the government is going through conniptions trying to stop investors from shorting stocks, housing guru and economist Robert Shiller is going the other direction.
He’s providing a security for investors to short the Case-Shiller home-price index. His firm MacroMarkets recently received approval for exchange-traded traded funds based on the index.
“One reason we have bubbles in the housing market is because there's been no way to short housing,” the Yale professor tells Time.
“The ability to short is essential to an efficient market, otherwise there's nothing to stop zealots from pricing things abnormally high.”
One version of the ETF (UMM) allows investors to buy the index.
“It's like buying a house, except you don't have to go through the real estate agent, take possession of a property, maintain it, rent it out,” Shiller says.
The other offering (DMM) provides an opportunity to short the index.
“Markets like this will also create an infrastructure for products,” Shiller says. “For example, insurers could issue home-equity insurance and then hedge themselves by taking a position in this market.”
As for housing’s current status, Shiller doesn’t think the market has bottomed.
“The conspicuous fact with our [Case-Shiller] data is that prices are still falling, although at a somewhat lower rate,” he explains.
Mark Zandi, chief economist of Economy.com, puts it in only slightly more optimistic terms.
“I think we’re clearly moving in the right direction,” he tells Bloomberg TV. “I think a year from now we’ll find a bottom.”
© 2009 Newsmax. All rights reserved.
Housing Starts Released on 5/19/2009 8:30:00 AM For April, 2009
Previous Consensus Consensus Range Actual
Starts - Level - SAAR 0.510 M 0.540 M 0.500 M to 0.560 M 0.458 M
Permits - Level - SAAR 0.513 M 0.494 M
Highlights
Housing starts in April fell sharply to a new record low for a series going back to 1959, largely on cutbacks in multifamily construction. Starts dropped another 12.8 percent, following an 8.5 percent decline in March. The April pace of 0.458 million units annualized was down 54.2 percent year-on-year and came in well below the market forecast for 0.540 million units. April's decrease was led by the multifamily component which plunged 46.1 percent while single-family starts edged up 2.8 percent.
By region, the fall in starts was led by a monthly 30.6 percent drop in the Northeast along with declines of 21.4 percent in the Midwest and 21.1 percent in the South. Starts rose in the West jumped 42.5 percent.
Permits also declined at the national level, falling 3.3 percent in April, after dropping 7.1 percent the month before. The April permit pace of 0.494 million units annualized was down 50.2 percent on a year-ago basis.
Equities should be disappointed by today's starts numbers. It appears that many have forgotten that starts are far downstream in the list of housing indicators. It should be expected that improvement in indicators such as the homebuilders housing market index or mortgage applications will take a long time to trickle down to actual new construction. This is especially the case as a spike in foreclosures is threatening to delay the sell down of housing inventories. Homebuilders clearly understand that any new construction will likely sit on the market for some time, having to compete with fire sale prices on foreclosures.
Market Consensus Before Announcement
Housing starts fell back 10.8 percent in March, following a 17.2 percent rebound the month before. But going back to January, atypically wet and cold weather in the South depressed starts, leading to the sharp rebound in February - which also was abetted by milder-than-usual weather. Looking ahead, many analysts see a glimmer of hope for housing from the 3.2 percent boost in pending home sales. But supply is still quite bloated and existing homes on the market may be getting heavier with the recent spike in foreclosures. Homebuilders still are likely to keep starts low for some time.
Definition
Housing starts measure initial construction of residential units (single-family and multi-family) each month. A rising (falling) trend points to gains (declines) in demand for furniture, home furnishings and appliances. Why Investors Care
Data Source: Haver Analytics
Starts - Level - SAAR 0.510 M 0.540 M 0.500 M to 0.560 M 0.458 M
Permits - Level - SAAR 0.513 M 0.494 M
Highlights
Housing starts in April fell sharply to a new record low for a series going back to 1959, largely on cutbacks in multifamily construction. Starts dropped another 12.8 percent, following an 8.5 percent decline in March. The April pace of 0.458 million units annualized was down 54.2 percent year-on-year and came in well below the market forecast for 0.540 million units. April's decrease was led by the multifamily component which plunged 46.1 percent while single-family starts edged up 2.8 percent.
By region, the fall in starts was led by a monthly 30.6 percent drop in the Northeast along with declines of 21.4 percent in the Midwest and 21.1 percent in the South. Starts rose in the West jumped 42.5 percent.
Permits also declined at the national level, falling 3.3 percent in April, after dropping 7.1 percent the month before. The April permit pace of 0.494 million units annualized was down 50.2 percent on a year-ago basis.
Equities should be disappointed by today's starts numbers. It appears that many have forgotten that starts are far downstream in the list of housing indicators. It should be expected that improvement in indicators such as the homebuilders housing market index or mortgage applications will take a long time to trickle down to actual new construction. This is especially the case as a spike in foreclosures is threatening to delay the sell down of housing inventories. Homebuilders clearly understand that any new construction will likely sit on the market for some time, having to compete with fire sale prices on foreclosures.
Market Consensus Before Announcement
Housing starts fell back 10.8 percent in March, following a 17.2 percent rebound the month before. But going back to January, atypically wet and cold weather in the South depressed starts, leading to the sharp rebound in February - which also was abetted by milder-than-usual weather. Looking ahead, many analysts see a glimmer of hope for housing from the 3.2 percent boost in pending home sales. But supply is still quite bloated and existing homes on the market may be getting heavier with the recent spike in foreclosures. Homebuilders still are likely to keep starts low for some time.
Definition
Housing starts measure initial construction of residential units (single-family and multi-family) each month. A rising (falling) trend points to gains (declines) in demand for furniture, home furnishings and appliances. Why Investors Care
Data Source: Haver Analytics
Market Reflections 5/18/2009
Strong earnings from home-improvement chain Lowe's, together with a rise in the housing market index, pushed stocks sharply higher Monday. Lowe's beat estimates, attributing results to improving consumer sentiment and indications that the housing sector is moving in the right direction. The housing market index rose for a second month, further raising talk that the worst of the housing slump may now be over. Other news included positive analyst comments on Bank of America, helping to drive banking stocks higher. The S&P 500 rose 3.0 percent to 909.71.
Money moved out of the safety of the dollar which fell 3/4 of a cent against the euro to end at $1.3560. The weaker dollar together with improved economic data raised the chances for inflation, making for big gains in commodities including oil which jumped $2-1/2 to $59. Demand for Treasuries eased in steepening trade with the 10-year yield up 10 basis points at 3.23 percent.
Money moved out of the safety of the dollar which fell 3/4 of a cent against the euro to end at $1.3560. The weaker dollar together with improved economic data raised the chances for inflation, making for big gains in commodities including oil which jumped $2-1/2 to $59. Demand for Treasuries eased in steepening trade with the 10-year yield up 10 basis points at 3.23 percent.
Monday, May 18, 2009
This Country Is the World's Most Likely Candidate for Hyperinflation
By Tom Dyson
Mrs. Watanabe is dumping the yen.
According to a story from Bloomberg this week, Japanese businessmen, housewives, and pensioners are dumping the yen against foreign currencies, especially the Australian dollar, the New Zealand dollar, and the euro. Women control the family finances in the typical Japanese household, so the international media has nicknamed the Japanese individual investor "Mrs. Watanabe."
Bloomberg says Mrs. Watanabe is now short 153,326 contracts against the yen. That's 35 times the short interest on March 4, the day the dumping began.
There's so much excess saving in Japan, the country's interest rates are miniscule. Right now, the interest rate on a one-year CD is Japan is 0.25%. Compare Japanese rates to foreign rates: The Aussie dollar yields 3%. The Brazilian real yields 10.25%.
Bloomberg explains Mrs. Watanabe's rush out of the yen as "yield hunting." This explanation makes sense. Japanese investors can make 12 times as much interest in the Australian dollar. Plus, all the foreign currencies made huge falls against the yen last year... The Aussie dollar fell 40% against the yen last year, for example. So to the Japanese investor, they must look cheap.
Here's the thing: The Japanese government is broke and can't pay back its debts. I think the gargantuan fall in the yen comes when Mrs. Watanabe figures out Japan's government will never pay back the $7 trillion she loaned it.
Check out the table from the IMF's World Economic Outlook published last month... It shows the debt-to-GDP ratio for the world's industrial nations. Japan is clearly the world's most broke major government...
(Zimbabwe has the world's most indebted government with a 2008 debt-to-GDP ratio of 241%, according to the CIA World Factbook.)
General Government Gross Debt as % of GDP
2005 2006 2007 2008e 2009e 2010e
Canada 71% 68% 64% 64% 75% 77%
France 66% 64% 64% 67% 75% 80%
Germany 66% 66% 64% 67% 79% 87%
Italy 106% 107% 104% 106% 115% 121%
Japan 192% 191% 188% 196% 217% 227%
UK 42% 43% 44% 52% 63% 73%
U.S. 63% 62% 63% 71% 87% 98%
Euroland 70% 68% 66% 69% 79% 85%
Source: IMF World Economic Outlook, April 2009
Another way of looking at the indebtedness of a government is debt per capita. In the U.S., for example, Uncle Sam owes $11 trillion... $4 trillion more than the Japanese government owes. If you express the debt per capita, the U.S. government owes $36,700 for every American citizen. The Japanese government owes almost twice as much: $70,000 per Japanese citizen.
Not only has the Japanese government built the world's largest and growing debt, but its ability to collect tax income is about to take a big hit. Japan is in a deep recession, and its businesses aren't able to sell goods abroad right now. Plus, Japan's population is shrinking and aging at the same time. Tax revenues will plummet just as the government's social security liabilities are ramping up. The Japanese government is in a hopeless situation.
Because the Japanese government is broke, I think Japan is the world's most likely candidate for hyperinflation. When Mrs. Watanabe realizes her government's credit is irreparably damaged, she'll dump her government bond and currency holdings and seek tangible assets...
Mrs. Watanabe's yield hunting could be the trigger that sets off the inflationary fireball in Japan. Consider shorting the yen ETF (FXY) to play this trend. Also, don't expect inflation in America until you see it in Japan first. After 20 years of deflation, Japan is much closer to the turning point than America is...
Mrs. Watanabe is dumping the yen.
According to a story from Bloomberg this week, Japanese businessmen, housewives, and pensioners are dumping the yen against foreign currencies, especially the Australian dollar, the New Zealand dollar, and the euro. Women control the family finances in the typical Japanese household, so the international media has nicknamed the Japanese individual investor "Mrs. Watanabe."
Bloomberg says Mrs. Watanabe is now short 153,326 contracts against the yen. That's 35 times the short interest on March 4, the day the dumping began.
There's so much excess saving in Japan, the country's interest rates are miniscule. Right now, the interest rate on a one-year CD is Japan is 0.25%. Compare Japanese rates to foreign rates: The Aussie dollar yields 3%. The Brazilian real yields 10.25%.
Bloomberg explains Mrs. Watanabe's rush out of the yen as "yield hunting." This explanation makes sense. Japanese investors can make 12 times as much interest in the Australian dollar. Plus, all the foreign currencies made huge falls against the yen last year... The Aussie dollar fell 40% against the yen last year, for example. So to the Japanese investor, they must look cheap.
Here's the thing: The Japanese government is broke and can't pay back its debts. I think the gargantuan fall in the yen comes when Mrs. Watanabe figures out Japan's government will never pay back the $7 trillion she loaned it.
Check out the table from the IMF's World Economic Outlook published last month... It shows the debt-to-GDP ratio for the world's industrial nations. Japan is clearly the world's most broke major government...
(Zimbabwe has the world's most indebted government with a 2008 debt-to-GDP ratio of 241%, according to the CIA World Factbook.)
General Government Gross Debt as % of GDP
2005 2006 2007 2008e 2009e 2010e
Canada 71% 68% 64% 64% 75% 77%
France 66% 64% 64% 67% 75% 80%
Germany 66% 66% 64% 67% 79% 87%
Italy 106% 107% 104% 106% 115% 121%
Japan 192% 191% 188% 196% 217% 227%
UK 42% 43% 44% 52% 63% 73%
U.S. 63% 62% 63% 71% 87% 98%
Euroland 70% 68% 66% 69% 79% 85%
Source: IMF World Economic Outlook, April 2009
Another way of looking at the indebtedness of a government is debt per capita. In the U.S., for example, Uncle Sam owes $11 trillion... $4 trillion more than the Japanese government owes. If you express the debt per capita, the U.S. government owes $36,700 for every American citizen. The Japanese government owes almost twice as much: $70,000 per Japanese citizen.
Not only has the Japanese government built the world's largest and growing debt, but its ability to collect tax income is about to take a big hit. Japan is in a deep recession, and its businesses aren't able to sell goods abroad right now. Plus, Japan's population is shrinking and aging at the same time. Tax revenues will plummet just as the government's social security liabilities are ramping up. The Japanese government is in a hopeless situation.
Because the Japanese government is broke, I think Japan is the world's most likely candidate for hyperinflation. When Mrs. Watanabe realizes her government's credit is irreparably damaged, she'll dump her government bond and currency holdings and seek tangible assets...
Mrs. Watanabe's yield hunting could be the trigger that sets off the inflationary fireball in Japan. Consider shorting the yen ETF (FXY) to play this trend. Also, don't expect inflation in America until you see it in Japan first. After 20 years of deflation, Japan is much closer to the turning point than America is...
Thomas Sowell: Regulators Started Housing Crisis
Thomas Sowell: Regulators Started Housing Crisis
Sunday, May 17, 2009 5:18 PM
to read the full article click on the heading above
Respected economist Dr. Thomas Sowell, author of the new book "The Housing Boom and Bust," tells Newsmax that the current housing crisis can be blamed on pressure from government officials seeking to remedy a "problem that didn't exist."
Dr. Sowell also said politicians' stated concern about that so-called problem — a lack of affordable housing — is "a farce."
Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
Newsmax.TV's Kathleen Walter asked Sowell what caused the "house of cards" in the housing market to collapse.
"The most fundamental thing is that the money that was normally paid for monthly housing payments stopped coming in, or stopped coming in in the volumes that it had in the past," said Sowell, a senior fellow at the Hoover Institution at Stanford University.
"The question then is, why did that happen? And the reason that happened was that banks and other lending institutions began lending to people who did not meet the traditional standards for mortgage loans, but were given those loans under pressure from government regulators, and even in some cases under threats from the Department of Justice if their statistics didn't match what the Department of Justice thought they should be — for example, in terms of income levels, race, what communities they invested in, and so on."
Walter noted that Sowell asserts in his book that politicians in Washington were trying to solve a problem that didn't exist.
"The problem that didn't exist was a national problem of unaffordable housing," Sowell explained.
"The housing in particular areas, particularly coastal California and some other areas around the country, were just astronomically high. It was not uncommon for people to have to pay half of their family income just to put a roof over their head. So that was a very serious problem where it existed.
"But it existed in various coastal communities primarily and a couple of other places. Unfortunately, the elites whose strongholds are on the East and West Coasts don't seem to understand that there's a whole country in between, and in most of that country housing was quite affordable by all historical standards.
"So they set out to solve the problem by setting up a federal program to bring down the mortgage requirements, the 20 percent down payment and that sort of thing, and by forcing Fannie Mae and Freddie Mac to buy up those mortgages from the people who no longer had to meet the same requirements.
"The banks had no choice but to go along because the regulators controlled their fate. So the banks would simply sign up people, sell the mortgages to Fannie Mae and Freddie Mac. It now became Fannie Mae and Freddie Mac's problem. And that meant it became the taxpayers' problem."
Walter asked: "Who is really responsible for all this?"
"There are a lot of people who were irresponsible," Sowell responded.
"But the fundamental problem, the problem of reduced lending standards, with people buying houses even with no money down in some cases, that all came precisely from the regulators that people are now talking about as the salvation of the housing market.
"There's no such thing as regulation in the abstract. There are certain kinds of regulation that can have beneficial effects. Canada does not have the same problem that we have even though they have regulations. But their regulators are trying to make sure that the banks and other lending institutions are obeying clear-cut rules. Ours were trying to produce higher statistics on home ownership in general, and in particular trying to reduce the gap between low-income people and high-income people, blacks and whites, et cetera."
Walter asked what Americans can do to ensure that the housing boom and bust will not happen again.
"First and foremost the voters have to learn to be skeptical and to find out what the facts are," Sowell said.
"There is not the slightest incentive for a politician to behave better in the future. If voters don't understand that, it's going to happen again.
"This is the worst housing crisis we've had but it is not the first. This very same drive to increase home ownership occurred under the Republicans in the '20s. It occurred under the Democrats in the '30s, and it occurred under both parties in the '40s and '50s.
"There is not the slightest incentive for politicians to learn from their mistakes because they pay no price for it. And they'll never pay a price for it as long as the voters don't make an effort to find out what is going on."
Sowell added: "I see absolutely no reason why politicians should take charge of which way prices go. That's precisely what led to the current disaster. . .
"When you realize how long politicians have been talking about a need for affordable housing, you realize what a farce it is."
Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
© 2009 Newsmax. All rights reserved.
Sunday, May 17, 2009 5:18 PM
to read the full article click on the heading above
Respected economist Dr. Thomas Sowell, author of the new book "The Housing Boom and Bust," tells Newsmax that the current housing crisis can be blamed on pressure from government officials seeking to remedy a "problem that didn't exist."
Dr. Sowell also said politicians' stated concern about that so-called problem — a lack of affordable housing — is "a farce."
Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
Newsmax.TV's Kathleen Walter asked Sowell what caused the "house of cards" in the housing market to collapse.
"The most fundamental thing is that the money that was normally paid for monthly housing payments stopped coming in, or stopped coming in in the volumes that it had in the past," said Sowell, a senior fellow at the Hoover Institution at Stanford University.
"The question then is, why did that happen? And the reason that happened was that banks and other lending institutions began lending to people who did not meet the traditional standards for mortgage loans, but were given those loans under pressure from government regulators, and even in some cases under threats from the Department of Justice if their statistics didn't match what the Department of Justice thought they should be — for example, in terms of income levels, race, what communities they invested in, and so on."
Walter noted that Sowell asserts in his book that politicians in Washington were trying to solve a problem that didn't exist.
"The problem that didn't exist was a national problem of unaffordable housing," Sowell explained.
"The housing in particular areas, particularly coastal California and some other areas around the country, were just astronomically high. It was not uncommon for people to have to pay half of their family income just to put a roof over their head. So that was a very serious problem where it existed.
"But it existed in various coastal communities primarily and a couple of other places. Unfortunately, the elites whose strongholds are on the East and West Coasts don't seem to understand that there's a whole country in between, and in most of that country housing was quite affordable by all historical standards.
"So they set out to solve the problem by setting up a federal program to bring down the mortgage requirements, the 20 percent down payment and that sort of thing, and by forcing Fannie Mae and Freddie Mac to buy up those mortgages from the people who no longer had to meet the same requirements.
"The banks had no choice but to go along because the regulators controlled their fate. So the banks would simply sign up people, sell the mortgages to Fannie Mae and Freddie Mac. It now became Fannie Mae and Freddie Mac's problem. And that meant it became the taxpayers' problem."
Walter asked: "Who is really responsible for all this?"
"There are a lot of people who were irresponsible," Sowell responded.
"But the fundamental problem, the problem of reduced lending standards, with people buying houses even with no money down in some cases, that all came precisely from the regulators that people are now talking about as the salvation of the housing market.
"There's no such thing as regulation in the abstract. There are certain kinds of regulation that can have beneficial effects. Canada does not have the same problem that we have even though they have regulations. But their regulators are trying to make sure that the banks and other lending institutions are obeying clear-cut rules. Ours were trying to produce higher statistics on home ownership in general, and in particular trying to reduce the gap between low-income people and high-income people, blacks and whites, et cetera."
Walter asked what Americans can do to ensure that the housing boom and bust will not happen again.
"First and foremost the voters have to learn to be skeptical and to find out what the facts are," Sowell said.
"There is not the slightest incentive for a politician to behave better in the future. If voters don't understand that, it's going to happen again.
"This is the worst housing crisis we've had but it is not the first. This very same drive to increase home ownership occurred under the Republicans in the '20s. It occurred under the Democrats in the '30s, and it occurred under both parties in the '40s and '50s.
"There is not the slightest incentive for politicians to learn from their mistakes because they pay no price for it. And they'll never pay a price for it as long as the voters don't make an effort to find out what is going on."
Sowell added: "I see absolutely no reason why politicians should take charge of which way prices go. That's precisely what led to the current disaster. . .
"When you realize how long politicians have been talking about a need for affordable housing, you realize what a farce it is."
Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
© 2009 Newsmax. All rights reserved.
Quotable: risk asset investment train is leaving the station and you’d better hop on.
“Last Friday the European Commission published what were arguably the most catastrophic economic statistics produced by any official institution in the capitalist world since 1945. These figures showed that Germany has suffered the steepest economic collapse ever recorded in a major industrialised country; and that several of the countries in Central Europe and on the periphery of the eurozone are now in a state of economic and financial meltdown comparable with Argentina, Indonesia and Russia in the 1990s or with Iceland last year.”
Anatole Kaletsky
On Friday, German reported some very nasty economic news—their economy fell at a 16% annualized rate during the first quarter of 2009. An excellent summary of the key problems now facing Germany and the Eurozone is provided by Anatole Kaletsky, an economic commentator for the UK Times and resident guru for GaveKal. We have provided the key points below for your perusal[our emphasis]:
Last Friday the European Commission published what were arguably the most catastrophic economic statistics produced by any official institution in the capitalist world since 1945. These figures showed that Germany has suffered the steepest economic collapse ever recorded in a major industrialised country; and that several of the countries in Central Europe and on the periphery of the eurozone are now in a state of economic and financial meltdown comparable with Argentina, Indonesia and Russia in the 1990s or with Iceland last year.” I have described repeatedly the three interacting elements now hitting Europe in a “perfect storm”. The first element is Germany's dependence on exports, especially of capital goods, cars and other consumer durables. … The second element of the perfect storm has been the reckless lending to Central Europe and the Baltic States, especially by banks based in Austria, Sweden, Greece and Italy, which in turn have been large borrowers from German investors and banks. … The third component of the economic hurricane is the euro itself. … The ultimate result is that the European economy will be caught in a 1930s-style deflationary spiral of deteriorating credit, deflationary government policies, falling wages and even further declines in credit. The most plausible way for Europe to escape from this vicious circle will be for Germany to abandon its age-old philosophy of fiscal rigour, to embark on a large-scale fiscal stimulus and to guarantee the debts of all its partners in the eurozone. A 16% annualized beating in the economy on Friday and the euro is flat at the moment after clawing back from losses earlier this morning.Fundamentals do matter. But as we know, what matters most is the perception of the fundamentals by traders. The idea that the worst is over means the rear view mirror bad news, such as a 16% annualized fall in the economy, marks the bottom because “it can’t get any worse.” At least that’s what the move in the stocks is telling the currency crowd—risk asset investment train is leaving the station and you’d better hop on.
Fundamentals do matter. But as we know, what matters most is the perception of the fundamentals by traders. The idea that the worst is over means the rear view mirror bad news, such as a 16% annualized fall in the economy, marks the bottom because “it can’t get any worse.” At least that’s what the move in the stocks is telling the currency crowd—risk asset investment train is leaving the station and you’d better hop on.
Click on the link to read the full article.
Thanks to Black Swan Trading.
Anatole Kaletsky
On Friday, German reported some very nasty economic news—their economy fell at a 16% annualized rate during the first quarter of 2009. An excellent summary of the key problems now facing Germany and the Eurozone is provided by Anatole Kaletsky, an economic commentator for the UK Times and resident guru for GaveKal. We have provided the key points below for your perusal[our emphasis]:
Last Friday the European Commission published what were arguably the most catastrophic economic statistics produced by any official institution in the capitalist world since 1945. These figures showed that Germany has suffered the steepest economic collapse ever recorded in a major industrialised country; and that several of the countries in Central Europe and on the periphery of the eurozone are now in a state of economic and financial meltdown comparable with Argentina, Indonesia and Russia in the 1990s or with Iceland last year.” I have described repeatedly the three interacting elements now hitting Europe in a “perfect storm”. The first element is Germany's dependence on exports, especially of capital goods, cars and other consumer durables. … The second element of the perfect storm has been the reckless lending to Central Europe and the Baltic States, especially by banks based in Austria, Sweden, Greece and Italy, which in turn have been large borrowers from German investors and banks. … The third component of the economic hurricane is the euro itself. … The ultimate result is that the European economy will be caught in a 1930s-style deflationary spiral of deteriorating credit, deflationary government policies, falling wages and even further declines in credit. The most plausible way for Europe to escape from this vicious circle will be for Germany to abandon its age-old philosophy of fiscal rigour, to embark on a large-scale fiscal stimulus and to guarantee the debts of all its partners in the eurozone. A 16% annualized beating in the economy on Friday and the euro is flat at the moment after clawing back from losses earlier this morning.Fundamentals do matter. But as we know, what matters most is the perception of the fundamentals by traders. The idea that the worst is over means the rear view mirror bad news, such as a 16% annualized fall in the economy, marks the bottom because “it can’t get any worse.” At least that’s what the move in the stocks is telling the currency crowd—risk asset investment train is leaving the station and you’d better hop on.
Fundamentals do matter. But as we know, what matters most is the perception of the fundamentals by traders. The idea that the worst is over means the rear view mirror bad news, such as a 16% annualized fall in the economy, marks the bottom because “it can’t get any worse.” At least that’s what the move in the stocks is telling the currency crowd—risk asset investment train is leaving the station and you’d better hop on.
Click on the link to read the full article.
Thanks to Black Swan Trading.
Friday, May 15, 2009
Weekly Market Update
HEADLINE NEWS WEEK ENDING 5/15/09
Overview
The sprouting “green shoots” may turn out to be closer in color to yellow—at least for now. Investor hope for an economic stabilization faded slightly as the retail sales and employment data disappointed this week. more...
US MARKETS
Treasury/Economics
US Treasury yields headed lower this week after a reprieve from new supply brought buyers back into the market. more...
Large-Cap Equities
The equity market fell sharply due to weak economic data and a plethora of secondary offerings by public companies. more...
Corporate Bonds
Investment-grade primary activity shot out of the gates this week with over $11.5 billion pricing on Monday alone. more...
Mortgage-Backed Securities
Mortgages enjoyed another week of easing credit conditions, robust demand, and declining volatility. more...
Municipal Bonds
The municipal bond market enjoyed another solid week as risk aversion continued to abate across credit markets. more...
High-Yield
The high yield market momentum of the prior eight weeks appears to be fading a bit. The Merrill Lynch High Yield Constrained Index is down 1.0% over the past week, after a stunning 20% rally from mid-March 2009 to early May. more...
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe lost ground over the past week. The stocks with the worst performance were basic resources (-9.7%) and real estate (-8.4%). more...
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -6.2% this week, while the Russian stock index RTS went down -0.2%. more...
Global Bonds and Currencies
Disappointment with the week’s global economic data triggered a return to risk aversion which benefited all major government bond markets in the past week. more...
Emerging-Market Bonds
Emerging markets sold off this week following weaker equity markets in the US. Dollar-pay debt spreads widened by 30 bps, taking a breather after several weeks of rally. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Overview
The sprouting “green shoots” may turn out to be closer in color to yellow—at least for now. Investor hope for an economic stabilization faded slightly as the retail sales and employment data disappointed this week. more...
US MARKETS
Treasury/Economics
US Treasury yields headed lower this week after a reprieve from new supply brought buyers back into the market. more...
Large-Cap Equities
The equity market fell sharply due to weak economic data and a plethora of secondary offerings by public companies. more...
Corporate Bonds
Investment-grade primary activity shot out of the gates this week with over $11.5 billion pricing on Monday alone. more...
Mortgage-Backed Securities
Mortgages enjoyed another week of easing credit conditions, robust demand, and declining volatility. more...
Municipal Bonds
The municipal bond market enjoyed another solid week as risk aversion continued to abate across credit markets. more...
High-Yield
The high yield market momentum of the prior eight weeks appears to be fading a bit. The Merrill Lynch High Yield Constrained Index is down 1.0% over the past week, after a stunning 20% rally from mid-March 2009 to early May. more...
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe lost ground over the past week. The stocks with the worst performance were basic resources (-9.7%) and real estate (-8.4%). more...
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -6.2% this week, while the Russian stock index RTS went down -0.2%. more...
Global Bonds and Currencies
Disappointment with the week’s global economic data triggered a return to risk aversion which benefited all major government bond markets in the past week. more...
Emerging-Market Bonds
Emerging markets sold off this week following weaker equity markets in the US. Dollar-pay debt spreads widened by 30 bps, taking a breather after several weeks of rally. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Quotable
“Anything in any way beautiful derives its beauty from itself and asks nothing beyond itself. Praise is no part of it, for nothing is made worse or better by praise.”
Marcus Aurelius
Marcus Aurelius
Market Reflections 5/14/2009
A rise in jobless claims didn't scare accounts away from the stock market where bargain hunting, following three days of selling, pushed the S&P 500 up 1% to 893. Auto sector layoffs, likely centered at Chrysler, drove initial jobless claims up 32,000 to 637,000 while continuing claims continue to mount, now at 6.56 million. Remember, the S&P move to 930 last week was based on expectations that job contraction was easing. Producer prices showed wide gains, easing questions over deflation but raising new ones on inflation.
Given gains in stocks, demand softened for the safety of the dollar which fell about 3/4 of a cent to $1.3640 against the euro. Oil rose about 50 cents to $58.50 while gold held firm at $925. Treasury yields were little changed with the 2-year ending at 0.84 percent
Given gains in stocks, demand softened for the safety of the dollar which fell about 3/4 of a cent to $1.3640 against the euro. Oil rose about 50 cents to $58.50 while gold held firm at $925. Treasury yields were little changed with the 2-year ending at 0.84 percent
Thursday, May 14, 2009
The State of Housing Markets Around The World: Not Bottoming Yet?
Only two countries (Germany and Switzerland) out of 32 main property markets saw positive momentum in 2008 (a slower downward house price movement or faster upward movement), while 28 countries saw momentum deteriorating. Around 8 out of 32 countries saw house prices rise, adjusting for inflation, while 20 countries experienced house price falls with the sharpest in Latvia (37%), Lithuania (27%), U.S. (20%), UK (18%), Iceland (16%), Ireland (12%), and Ukraine (Kiev) (12%). Downward price momentum accelerated in Q4 2008 (Global Property Guide)
While stock market recoveries often precede an economic recovery, a key driver of property occupancy - employment - is often one of the last economic indicators to turn. This suggests that 2009 will remain a difficult year for commercial and residential property globally (Jones Lasalle)
While stock market recoveries often precede an economic recovery, a key driver of property occupancy - employment - is often one of the last economic indicators to turn. This suggests that 2009 will remain a difficult year for commercial and residential property globally (Jones Lasalle)
Market Reflections 5/13/2009
In a setback for the economic outlook, retail sales proved weak for a second month. Accounts moved to safety, exiting the stock market where the S&P 500 fell 2.7 percent to end at just under 884. The dollar gained 1/2 cent against the euro to $1.3584 while Treasury yields fell 1 to 7 basis points in steepening trade. Oil fell back on demand concerns, ending down $1 to just under $58 despite big draws in weekly inventory data. Gold, benefiting from steady concern over financial-system risk, held firm ending at $926.
The Correction Finally Arrives
Don Worden:
"The markets have finally made up their minds what they want to do. In so doing it gave me a feeling of relief.It seemed to me that the market was acting too resistant to decline in view of the grim trading stats.In situations like that, I realize people are bombarded with bullish opinions (from experts). This leads to widespread confusion and ans a futile search for justification for a new wave of opinion.
"The markets have finally made up their minds what they want to do. In so doing it gave me a feeling of relief.It seemed to me that the market was acting too resistant to decline in view of the grim trading stats.In situations like that, I realize people are bombarded with bullish opinions (from experts). This leads to widespread confusion and ans a futile search for justification for a new wave of opinion.
Wednesday, May 13, 2009
Retail Sales
Released on 5/13/2009 8:30:00 AM For April, 2009
Previous Consensus Consensus Range Actual
Retail Sales - M/M change -1.1 % 0.1 % -0.6 % to 0.6 % -0.4 %
Retail Sales less autos - M/M change -0.9 % 0.3 % -0.2 % to 0.8 % -0.5 %
Highlights
Retail sales in April were surprisingly negative, dashing market expectations significantly for two months in a row. Overall retail sales fell another 0.4 percent in April after dropping 1.3 percent the month before. The April decrease was sharply below the market forecast for a 0.1 percent increase. Excluding motor vehicles, retail sales posted a 0.5 percent decline, after a 1.2 percent plunge in March. The fall in ex-auto sales was far worse than the consensus expectation for a 0.3 percent increase.
Declines in sales were broad based but led by electronics & appliance stores, down 2.8 percent; gasoline stations, down 2.3 percent; and food & beverage stores, down 1.0 percent. The downward tug by gasoline sales hardly explains the overall weakness. Excluding motor vehicles and gasoline, retail sales fell 0.3 percent after declining 1.0 percent in March.
Overall retail sales on a year-on-year basis in April were down 10.1 percent, down from minus 9.6 percent in March. Excluding motor vehicles, the year-on-year rate worsened to down 7.7 percent from down 6.3 percent in March.
Equities will not like today's retail sales numbers. The green shoots view of the economy holds true only if the consumer sector stabilizes. Look for possible flight to safety in the bond market.
Market Consensus Before Announcement
Retail sales dropped 1.1 percent in March after a 0.3 percent gain in February. Sales were weak across the board. But the strongest declines were seen in electronics & appliance stores, motor vehicles, and miscellaneous store retailers. Excluding motor vehicles, retail sales decreased 0.9 percent, after a 1.0 percent boost the month before. Our first glimpse at consumer spending for April was not good, hinting retail sales could decline further for the month. Unit new motor vehicle sales fell back to a 9.32 million unit annualized pace for the month after a 9.86 million unit rate in March - a 5.5 percent monthly decline.
Definition
Retail sales measure the total receipts at stores that sell durable and nondurable goods. Consumer spending accounts for two-thirds of GDP and is therefore a key element in economic growth. Why Investors Care
Data Source: Haver Analytics
Previous Consensus Consensus Range Actual
Retail Sales - M/M change -1.1 % 0.1 % -0.6 % to 0.6 % -0.4 %
Retail Sales less autos - M/M change -0.9 % 0.3 % -0.2 % to 0.8 % -0.5 %
Highlights
Retail sales in April were surprisingly negative, dashing market expectations significantly for two months in a row. Overall retail sales fell another 0.4 percent in April after dropping 1.3 percent the month before. The April decrease was sharply below the market forecast for a 0.1 percent increase. Excluding motor vehicles, retail sales posted a 0.5 percent decline, after a 1.2 percent plunge in March. The fall in ex-auto sales was far worse than the consensus expectation for a 0.3 percent increase.
Declines in sales were broad based but led by electronics & appliance stores, down 2.8 percent; gasoline stations, down 2.3 percent; and food & beverage stores, down 1.0 percent. The downward tug by gasoline sales hardly explains the overall weakness. Excluding motor vehicles and gasoline, retail sales fell 0.3 percent after declining 1.0 percent in March.
Overall retail sales on a year-on-year basis in April were down 10.1 percent, down from minus 9.6 percent in March. Excluding motor vehicles, the year-on-year rate worsened to down 7.7 percent from down 6.3 percent in March.
Equities will not like today's retail sales numbers. The green shoots view of the economy holds true only if the consumer sector stabilizes. Look for possible flight to safety in the bond market.
Market Consensus Before Announcement
Retail sales dropped 1.1 percent in March after a 0.3 percent gain in February. Sales were weak across the board. But the strongest declines were seen in electronics & appliance stores, motor vehicles, and miscellaneous store retailers. Excluding motor vehicles, retail sales decreased 0.9 percent, after a 1.0 percent boost the month before. Our first glimpse at consumer spending for April was not good, hinting retail sales could decline further for the month. Unit new motor vehicle sales fell back to a 9.32 million unit annualized pace for the month after a 9.86 million unit rate in March - a 5.5 percent monthly decline.
Definition
Retail sales measure the total receipts at stores that sell durable and nondurable goods. Consumer spending accounts for two-thirds of GDP and is therefore a key element in economic growth. Why Investors Care
Data Source: Haver Analytics
MBA Purchase Applications
Not really good news.
Released on 5/13/2009 7:00:00 AM For wk5/8, 2009
Previous Actual
Purchase Index - Level 264.3 265.7
Highlights
MBA's purchase index is improving but not much at 265.7 in the May 8 week vs. 264.3 in the prior week. These results, along with levels in April, are not pointing to a major pickup in home sales, suggesting that low interest rates and falling home prices are, as yet, giving only a limited boost to home sales. Low interest rates have had a big impact on refinancing, though demand has been slowing in recent weeks with the index down 11.2 percent to 4,588.6. Mortgage rates are at rock bottom with 30-year fixed loans averaging 4.76 percent for a 3 basis point decline.
Definition
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Why we care about this:
Why Investor's Care
This provides a gauge of not only the demand for housing, but economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the Mortgage Bankers Association purchase applications, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once a home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, housing construction has a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the MBA purchase applications index carries valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Frequency
Weekly
Revisions
Weekly, data for previous week are revised to reflect more complete information.
Definition
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Released on 5/13/2009 7:00:00 AM For wk5/8, 2009
Previous Actual
Purchase Index - Level 264.3 265.7
Highlights
MBA's purchase index is improving but not much at 265.7 in the May 8 week vs. 264.3 in the prior week. These results, along with levels in April, are not pointing to a major pickup in home sales, suggesting that low interest rates and falling home prices are, as yet, giving only a limited boost to home sales. Low interest rates have had a big impact on refinancing, though demand has been slowing in recent weeks with the index down 11.2 percent to 4,588.6. Mortgage rates are at rock bottom with 30-year fixed loans averaging 4.76 percent for a 3 basis point decline.
Definition
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Why we care about this:
Why Investor's Care
This provides a gauge of not only the demand for housing, but economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the Mortgage Bankers Association purchase applications, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once a home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, housing construction has a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the MBA purchase applications index carries valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Frequency
Weekly
Revisions
Weekly, data for previous week are revised to reflect more complete information.
Definition
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Market Reflections 5/12/2009
Tuesday was a quiet session for the stock market on caution ahead of tomorrow's retail sales report. Trade data showed deepening weakness for exports reflecting recessionary effects in other nations. In a separate report, the Treasury posted its first deficit in the tax month of April since 1983. The S&P 500 slipped 0.1 percent to 908.
The biggest news came from oil which hit $60 before edging back below $59. Traders stress that gains in oil do not reflect current supply/demand fundamentals, reflecting instead strength in the stock market and weakness in the dollar which slipped 1/2 cent to $1.3637 against the euro. Weakness in the dollar is tied to increasing appetite for risk, the result of optimism in the U.S. and tangible signs of strength in China.
The biggest news came from oil which hit $60 before edging back below $59. Traders stress that gains in oil do not reflect current supply/demand fundamentals, reflecting instead strength in the stock market and weakness in the dollar which slipped 1/2 cent to $1.3637 against the euro. Weakness in the dollar is tied to increasing appetite for risk, the result of optimism in the U.S. and tangible signs of strength in China.
Tuesday, May 12, 2009
Will the Fed buy more bonds?
U.S. Treasury bonds have fallen over half a percentage point in the past seven weeks, the biggest fall since 1994. Mortgages rates on 30-year fixed loans are back to more than 5%... This sets the stage for a showdown between the government's lenders (bond buyers) and the Federal Reserve, which wants interest rates to remain low. The Street (BlackRock, American Century, Federated, and Pioneer Investment) thinks the Fed will buy Treasury bonds again (like it did last month) in order to force rates lower. No matter what the Fed does, long-term interest rates are going much higher and the bond market is going to get crushed.
What will more and more creditworthy borrowers do when they see the Fed engineering a huge new inflation? Borrow as much money as they can, at fixed rates. Take Microsoft, for example. Bill Gates' company has never borrowed a penny before – ever. It has no need for debt financing whatsoever – it's sitting on more than $20 billion in cash reserves. Nevertheless, Microsoft will borrow billions in five, 10, and 30-year debt. It will use the money from this sale to help fund a $40 billion share repurchase program – nearly 25% of the company's outstanding shares. Follow Bill Gates' lead: Buy high-quality equity. Sell government debt.
Another member of the ultra-wealthy, Bond King Bill Gross, is also betting on inflation. Gross reduced U.S. government-related debt holdings (which include Treasuries, agency debt, and government-backed bank debt) in his PIMCO Total Return Fund for the first time since January. His holdings are now 26% of the fund down from 28% in March - the most he's owned since April 2007. If his May 8 interview with CNBC is any clue, Gross may shift some assets into senior bank debt now that the government's stress tests are done... "The banking system is enduring," Gross said. "These types of spreads on the senior debt level are historic and quite attractive."
From Bloomberg:
BlackRock Inc., American Century Investments, Federated Investors and Pioneer Investment Management say it's time to buy Treasuries because the Fed will need to expand its purchases to keep consumer borrowing costs from rising further."
While government buying of Treasuries will temporarily keep yields down, and could make for a good short-term trade, it won't stop the eventual massive inflation hangover.
What will more and more creditworthy borrowers do when they see the Fed engineering a huge new inflation? Borrow as much money as they can, at fixed rates. Take Microsoft, for example. Bill Gates' company has never borrowed a penny before – ever. It has no need for debt financing whatsoever – it's sitting on more than $20 billion in cash reserves. Nevertheless, Microsoft will borrow billions in five, 10, and 30-year debt. It will use the money from this sale to help fund a $40 billion share repurchase program – nearly 25% of the company's outstanding shares. Follow Bill Gates' lead: Buy high-quality equity. Sell government debt.
Another member of the ultra-wealthy, Bond King Bill Gross, is also betting on inflation. Gross reduced U.S. government-related debt holdings (which include Treasuries, agency debt, and government-backed bank debt) in his PIMCO Total Return Fund for the first time since January. His holdings are now 26% of the fund down from 28% in March - the most he's owned since April 2007. If his May 8 interview with CNBC is any clue, Gross may shift some assets into senior bank debt now that the government's stress tests are done... "The banking system is enduring," Gross said. "These types of spreads on the senior debt level are historic and quite attractive."
From Bloomberg:
BlackRock Inc., American Century Investments, Federated Investors and Pioneer Investment Management say it's time to buy Treasuries because the Fed will need to expand its purchases to keep consumer borrowing costs from rising further."
While government buying of Treasuries will temporarily keep yields down, and could make for a good short-term trade, it won't stop the eventual massive inflation hangover.
Was It a Sucker's Rally?
You can have a jobless recovery but you can't have a profitless one.
By ANDY KESSLER
The Dow Jones Industrial Average has bounced an astounding 30% from its March 9 low of 6547. Is this the dawn of a new era? Are we off to the races again?
I'm not so sure. Only a fool predicts the stock market, so here I go. This sure smells to me like a sucker's rally. That's because there aren't sustainable, fundamental reasons for the market's continued rise. Here are three explanations for the short-term upswing:
- Armageddon is off the table. It has been clear for some time that the funds available from the federal government's Troubled Asset Relief Program (TARP) were not going to be enough to shore up bank balance sheets laced with toxic assets.
On Feb. 10, Treasury Secretary Timothy Geithner rolled out another, much hyped bank rescue plan. It was judged incomplete -- and the market sold off 382 points in disgust.
Citigroup stock flirted with $1 on March 9. Nationalizations seemed inevitable as bears had their day.
Still, the Treasury bought time by announcing on the same day as Mr. Geithner's underwhelming rescue plan that it would conduct "stress tests" of 19 large U.S. banks. It also implied, over time, that no bank would fail the test (which was more a negotiation than an audit). And when White House Chief of Staff Rahm Emanuel clearly stated on April 19 that nationalization was "not the goal" of the administration, it became safe to own financial stocks again.
It doesn't matter if financial institution losses are $2 trillion or the pessimists' $3.6 trillion. "No more failures" is policy. While the U.S. government may end up owning maybe a third of the equity of Citi and Bank of America and a few others, none will be nationalized. And even though future bank profits will be held back by constant write downs of "legacy" assets (we don't call them toxic anymore), the bears have backed off and the market rallied -- Citi is now $4.
- Zero yields. The Federal Reserve, by driving short-term rates to almost zero, has messed up asset allocation formulas. Money always seeks its highest risk-adjusted return. Thus in normal markets if bond yields rise they become more attractive than risky stocks, so money shifts. And vice versa. Well, have you looked at your bank statement lately?
Savings accounts pay a whopping 0.2% interest rate -- 20 basis points. Even seven-day commercial paper money-market funds are paying under 50 basis points. So money has shifted to stocks, some of it automatically, as bond returns are puny compared to potential stock returns. Meanwhile, both mutual funds and hedge funds that missed the market pop are playing catch-up -- rushing to buy stocks.
- Bernanke's printing press. On March 18, the Federal Reserve announced it would purchase up to $300 billion of long-term bonds as well as $750 billion of mortgage-backed securities. Of all the Fed's moves, this "quantitative easing" gets money into the economy the fastest -- basically by cranking the handle of the printing press and flooding the market with dollars (in reality, with additional bank credit). Since these dollars are not going into home building, coal-fired electric plants or auto factories, they end up in the stock market.
A rising market means that banks are able to raise much-needed equity from private money funds instead of from the feds. And last Thursday, accompanying this flood of new money, came the reassuring results of the bank stress tests.
The next day Morgan Stanley raised $4 billion by selling stock at $24 in an oversubscribed deal. Wells Fargo also raised $8.6 billion that day by selling stock at $22 a share, up from $8 two months ago. And Bank of America registered 1.25 billion shares to sell this week. Citi is next. It's almost as if someone engineered a stock-market rally to entice private investors to fund the banks rather than taxpayers.
Can you see why I believe this is a sucker's rally?
The stock market still has big hurdles to clear. You can have a jobless recovery, but you can't have a profitless recovery. Consider: Earnings are subpar, Treasury's last auction was a bust because of weak demand, the dollar is suspect, the stimulus is pork, the latest budget projects a $1.84 trillion deficit, the administration is berating investment firms and hedge funds saying "I don't stand with them," California is dead broke, health care may be nationalized, cap and trade will bump electric bills by 30% . . . Shall I go on?
Until these issues are resolved, I don't see the stock market going much higher. I'm not disagreeing with the Fed's policies -- but I won't buy into a rising stock market based on them. I'm bullish when I see productivity driving wealth.
For now, the market appears dependent on a hand cranking out dollars to help fund banks. I'd rather see rising expectations for corporate profits.
Mr. Kessler, a former hedge-fund manager, is the author of "How We Got Here" (Collins, 2005).
Please add your comments to the Opinion Journal forum.
Printed in The Wall Street Journal, page A17
By ANDY KESSLER
The Dow Jones Industrial Average has bounced an astounding 30% from its March 9 low of 6547. Is this the dawn of a new era? Are we off to the races again?
I'm not so sure. Only a fool predicts the stock market, so here I go. This sure smells to me like a sucker's rally. That's because there aren't sustainable, fundamental reasons for the market's continued rise. Here are three explanations for the short-term upswing:
- Armageddon is off the table. It has been clear for some time that the funds available from the federal government's Troubled Asset Relief Program (TARP) were not going to be enough to shore up bank balance sheets laced with toxic assets.
On Feb. 10, Treasury Secretary Timothy Geithner rolled out another, much hyped bank rescue plan. It was judged incomplete -- and the market sold off 382 points in disgust.
Citigroup stock flirted with $1 on March 9. Nationalizations seemed inevitable as bears had their day.
Still, the Treasury bought time by announcing on the same day as Mr. Geithner's underwhelming rescue plan that it would conduct "stress tests" of 19 large U.S. banks. It also implied, over time, that no bank would fail the test (which was more a negotiation than an audit). And when White House Chief of Staff Rahm Emanuel clearly stated on April 19 that nationalization was "not the goal" of the administration, it became safe to own financial stocks again.
It doesn't matter if financial institution losses are $2 trillion or the pessimists' $3.6 trillion. "No more failures" is policy. While the U.S. government may end up owning maybe a third of the equity of Citi and Bank of America and a few others, none will be nationalized. And even though future bank profits will be held back by constant write downs of "legacy" assets (we don't call them toxic anymore), the bears have backed off and the market rallied -- Citi is now $4.
- Zero yields. The Federal Reserve, by driving short-term rates to almost zero, has messed up asset allocation formulas. Money always seeks its highest risk-adjusted return. Thus in normal markets if bond yields rise they become more attractive than risky stocks, so money shifts. And vice versa. Well, have you looked at your bank statement lately?
Savings accounts pay a whopping 0.2% interest rate -- 20 basis points. Even seven-day commercial paper money-market funds are paying under 50 basis points. So money has shifted to stocks, some of it automatically, as bond returns are puny compared to potential stock returns. Meanwhile, both mutual funds and hedge funds that missed the market pop are playing catch-up -- rushing to buy stocks.
- Bernanke's printing press. On March 18, the Federal Reserve announced it would purchase up to $300 billion of long-term bonds as well as $750 billion of mortgage-backed securities. Of all the Fed's moves, this "quantitative easing" gets money into the economy the fastest -- basically by cranking the handle of the printing press and flooding the market with dollars (in reality, with additional bank credit). Since these dollars are not going into home building, coal-fired electric plants or auto factories, they end up in the stock market.
A rising market means that banks are able to raise much-needed equity from private money funds instead of from the feds. And last Thursday, accompanying this flood of new money, came the reassuring results of the bank stress tests.
The next day Morgan Stanley raised $4 billion by selling stock at $24 in an oversubscribed deal. Wells Fargo also raised $8.6 billion that day by selling stock at $22 a share, up from $8 two months ago. And Bank of America registered 1.25 billion shares to sell this week. Citi is next. It's almost as if someone engineered a stock-market rally to entice private investors to fund the banks rather than taxpayers.
Can you see why I believe this is a sucker's rally?
The stock market still has big hurdles to clear. You can have a jobless recovery, but you can't have a profitless recovery. Consider: Earnings are subpar, Treasury's last auction was a bust because of weak demand, the dollar is suspect, the stimulus is pork, the latest budget projects a $1.84 trillion deficit, the administration is berating investment firms and hedge funds saying "I don't stand with them," California is dead broke, health care may be nationalized, cap and trade will bump electric bills by 30% . . . Shall I go on?
Until these issues are resolved, I don't see the stock market going much higher. I'm not disagreeing with the Fed's policies -- but I won't buy into a rising stock market based on them. I'm bullish when I see productivity driving wealth.
For now, the market appears dependent on a hand cranking out dollars to help fund banks. I'd rather see rising expectations for corporate profits.
Mr. Kessler, a former hedge-fund manager, is the author of "How We Got Here" (Collins, 2005).
Please add your comments to the Opinion Journal forum.
Printed in The Wall Street Journal, page A17
Market Reflections 5/11/2009
Monday prove to be a quiet defensive session. The administration, citing the slow economy, raised its fiscal-year deficit projection by $89 billion to $1.8 trillion, borrowing 46 cents for each dollar the government spends. The 2010 deficit is pegged at $1.3 trillion. Otherwise, the only news in the session was stock and debt issuance. Several banks issued stock following stress-test related issuance on Friday where demand proved very strong. Microsoft also tapped the debt market for the first time, selling $3.75 billion in 5-, 10-, and 30-year notes.
Stocks fell back amid questions whether Friday's big gains were overdone. The S&P 500 fell 2.2% to 909. Oil also fell back a bit, ending at $58.15. Gold was steady at $914. The dollar firmed slightly from Friday's selloff to end at $1.3582 against the euro. Demand for the safety of Treasuries picked up with the 10-year yield down 12 basis points to 3.16 percent.
Stocks fell back amid questions whether Friday's big gains were overdone. The S&P 500 fell 2.2% to 909. Oil also fell back a bit, ending at $58.15. Gold was steady at $914. The dollar firmed slightly from Friday's selloff to end at $1.3582 against the euro. Demand for the safety of Treasuries picked up with the 10-year yield down 12 basis points to 3.16 percent.
Subscribe to:
Posts (Atom)