“Due to federal government spending, for the first time since 1931 the US economy is reporting negative net national (personal + corporate + government) savings. In 2008, the negative savings were -$124.6 billion or 0.94% of GDP. In Q1 2009, the negative savings were -$183 billion or 1.3% of GDP.”
This is ominous for a whole host of reasons, but three key reasons come to mind:
1) US savings rates have soared and still can’t cover the spending by the drunken sailors at the helm
2) Loss of the ability to generate wealth is not just a game of numbers, but is sparked by numerous disincentives to produce wealth in the first place and can self-feed. Does anyone remember Atlas Shrugged? In Rand’s brilliant novel producers when on strike because they got tired of the parasites stealing their wealth for the “masses.”
3) Proves that this team in power has little respect for the market and its ability to heal itself by cleansing away the excess baggage. Every connected political crony needs to be saved, according to this crowd.
So, as they say: “How’s that hopey-changey thing working out for you?” If you are a Federal government employee or one of the masses being “saved” by your government through the confiscation of others wealth, or you know nothing about how the market works, then you are likely loving hopey-changey. But those who have worked 7-days a week for many years to build businesses all over American are hoping we can get some changey very soon!
from:Jack Crooks
Black Swan Capital LLC
www.blackswantrading.com
Wednesday, June 10, 2009
Market Reflections 6/9/2009
Ten banks said they are paying back the TARP funds that helped keep many of them afloat during the worst of last year's credit panic, headlining an otherwise steady session that was anything but quiet. The recent surge in interest rates is raising talk whether the government should cut short its massive stimulus program, redirecting nearly $800 billion in unspent stimulus funds to pay down the deficit. There's talk that should the recovery take hold and stimulus efforts are not reversed, inflation will be the result -- a risk that explains strong and rising inflows into commodities.
Oil toyed with $70 through the session while copper jumped 5 percent on the day. Continued increases in commodity prices will hurt the recovery and raise the risk of an inflation-induced recession. Investors are on the look out for any troubles at this week's Treasury auctions, trouble that would indicate investors are no longer comfortable with dollar-based fixed income instruments. But there's absolutely no sign of that yet as today's giant $35 billion 3-year note auction found very strong demand. The dollar did fall back in the session but in a reversal of yesterday's gains, ending down 1.3 percent at 79.82 on the dollar index. Stocks were little changed with the S&P 500 up 0.4 percent at just over 940.
Oil toyed with $70 through the session while copper jumped 5 percent on the day. Continued increases in commodity prices will hurt the recovery and raise the risk of an inflation-induced recession. Investors are on the look out for any troubles at this week's Treasury auctions, trouble that would indicate investors are no longer comfortable with dollar-based fixed income instruments. But there's absolutely no sign of that yet as today's giant $35 billion 3-year note auction found very strong demand. The dollar did fall back in the session but in a reversal of yesterday's gains, ending down 1.3 percent at 79.82 on the dollar index. Stocks were little changed with the S&P 500 up 0.4 percent at just over 940.
Tuesday, June 9, 2009
The depression quietly deepens
The depression quietly deepens
It is lonely in the diminishing camp of bears, says Ambrose Evans-Pritchard
Those of us who still question whether the world has purged its toxins are reduced to the same tiny band of moaning Druids from early 2007, when we shook our heads in disbelief as the carry trade swept Iceland to fresh madness and bankers laughed off sub-prime rot at Bear Stearns.
We learned then to thicken our skins with walnut juice, lie down in dark rooms, and dissent from Goldman Sachs. Such seclusion is called for once again as Goldman replays its BRIC anthem and raises its oil forecast to $85 a barrel this year, betting that the world will roar back on a tidal wave of liquidity.
Related Articles
Savvy Gulf funds question global rally
Business as usual ? big bonuses for bankers
IMF tells Europe to come clean on bank losses
Real economy is biggest presidential challenge
Ed Balls deserves his chance at No 11It is perhaps unkind to mention that Goldman issued a $200 call at the top of the speculative frenzy last year, just before oil crashed, but they have broad shoulders.
Note that Total's Jean-Jacques Mosconi said markets are awash with so much crude that almost 100m barrels (a near record) are stored on tankers at sea. Note too that May electricity use fell 10pc in China's industrial hub of Guangdong from a year earlier. This is revealing, given that China's fiscal boost has reached peak and will fade later this year.
For guidance on where we are in this long-drawn saga, I look to Berkeley's Barry Eichengreen, author of the Great Depression classic Golden Fetters – which avoids the error of viewing the 1930s through a US prism.
He has crunched the latest data with Trinity College Dublin's Kevin O'Rourke for VoxEU, concluding that the global rupture over the last nine months has been more violent than in the early slump. This is logical. Global debt leverage is much greater this time.
The fall in industrial output has been roughly equal to the 1929-1930 stage for Germany and the Anglo-Saxons, but worse for Japan, France, Italy, and Eastern Europe. The collapse in world trade has been swifter: the global equity crash has been twice as bad. "It's a depression alright. The good news is that the policy response is very different. The question now is whether that response will work," they said.
The elastic was bound to snap back, just as it did in the bear rally of early 1931. Whether the underlying economy has begun to heal is another matter. World Bank chief economist Justin Yifu Lin said capacity utilization is running at an historic low of 50pc-60pc. Companies will have to fire a lot of workers. This is where the danger lies, and why he fears that deflation is creeping up on us.
Trade data from Asia are flashing warning signals again. Korea's exports were down 28.3pc in May, reversing the April rebound. Malaysia has slipped to -26pc, and India has touched a new low of -33pc.
US freight data is getting worse, not better. The Association of American Railroads said traffic was down 22pc in the third week of May from a year earlier. Canadian freight was down 34pc.
The American Trucking Association (ATA) said it saw fresh drops of 4.5pc in March and a further 2.2pc in April. Tonnage is down 13pc over 12 months. Bob Costello, the ATA's chief economist, said companies have not cut inventories fast enough to keep pace with declining sales. The contraction in truck volume has "accelerated".
Yes, the Baltic Dry Index for bulk shipping of resources has quadrupled since January, but this reflects China's bid to stockpile metals while prices are low.
Stephen Roach, Morgan Stanley's Far East chief, fears an "Asian Relapse", saying the region is prisoner to its fatal dependency on exports to the West. The export share of GDP has risen from 36pc to 47pc across developing Asia over the last decade.
"China's incipient rebound relies on a time-worn stimulus formula: upping the ante on infrastructure spending in anticipation of an eventual rebound of global demand," he said. The strategy cannot work this time because Americans have exhausted their credit, and their desire to borrow. Consumption will fall from its peak of 72pc of GDP to the "pre-bubble norm" of 67pc, if not more.
David Rosenberg from Gluskins Sheff expects Americans to retrench ferociously as 78m baby boomers face the looming threat of penury in old age. "The big story is that the personal savings rate hit a 15-year high of 5.7pc in April. I believe it could test the post-War peak of 15pc. Too many pundits are still living in the old paradigm of Americans shopping till they drop," he said.
If he is right, this will shatter the surplus economies of China, Japan, and Germany, unless they adjust fast to the new world order. Germany does not even seem to understand the problem it faces. Chancellor Angela Merkel lashed out last week at quantitative easing by the Fed, the Bank of England, and the European Central Bank, repeating the silly mantra that this will set off an inflationary storm.
How can it do so when the velocity of circulation has collapsed, and unemployment is rising everywhere? The Fed's "monetary multiplier" ended last week at 0.867, half its average of 1.7 over the last decade. The credit mechanism is still broken. This is what happened in Japan in its Lost Decade.
The ECB says the eurozone economy will contract until mid-2010, at best. Germany's trade association (Wirtschaftsverbände) warned Mrs Merkel last week that the credit drought threatens to become "life-threatening by the summer at the latest".
The list of countries in deflation is growing every month: Ireland (-3.5), Thailand (-3.3), China (-1.5), Switzerland (-1), Spain (-0.8), the US (-0.7), Singapore (-0.7), Taiwan (-0.5), Belgium (-0.4), Japan (-0.1), Sweden (-0.1), Germany (0).
Yet markets seem to think otherwise, and this has its own awful consequences. Inflation fears have driven 10-year US Treasury yields to 3.86pc, a full point above levels in March when the Fed intervened to force rates down. US mortgage rates have jumped to 5.29pc. Gilts have reached 3.92pc, and French 10-year bonds are at 4.05pc.
This bond revolt is enough to bring any global recovery to a shuddering halt. The irony is that those fretting loudest about inflation may themselves tip us into outright deflation, with all the perils of a debt compound trap. It is Angela Merkel who plays with fire.
http://www.telegraph.co.uk/
It is lonely in the diminishing camp of bears, says Ambrose Evans-Pritchard
Those of us who still question whether the world has purged its toxins are reduced to the same tiny band of moaning Druids from early 2007, when we shook our heads in disbelief as the carry trade swept Iceland to fresh madness and bankers laughed off sub-prime rot at Bear Stearns.
We learned then to thicken our skins with walnut juice, lie down in dark rooms, and dissent from Goldman Sachs. Such seclusion is called for once again as Goldman replays its BRIC anthem and raises its oil forecast to $85 a barrel this year, betting that the world will roar back on a tidal wave of liquidity.
Related Articles
Savvy Gulf funds question global rally
Business as usual ? big bonuses for bankers
IMF tells Europe to come clean on bank losses
Real economy is biggest presidential challenge
Ed Balls deserves his chance at No 11It is perhaps unkind to mention that Goldman issued a $200 call at the top of the speculative frenzy last year, just before oil crashed, but they have broad shoulders.
Note that Total's Jean-Jacques Mosconi said markets are awash with so much crude that almost 100m barrels (a near record) are stored on tankers at sea. Note too that May electricity use fell 10pc in China's industrial hub of Guangdong from a year earlier. This is revealing, given that China's fiscal boost has reached peak and will fade later this year.
For guidance on where we are in this long-drawn saga, I look to Berkeley's Barry Eichengreen, author of the Great Depression classic Golden Fetters – which avoids the error of viewing the 1930s through a US prism.
He has crunched the latest data with Trinity College Dublin's Kevin O'Rourke for VoxEU, concluding that the global rupture over the last nine months has been more violent than in the early slump. This is logical. Global debt leverage is much greater this time.
The fall in industrial output has been roughly equal to the 1929-1930 stage for Germany and the Anglo-Saxons, but worse for Japan, France, Italy, and Eastern Europe. The collapse in world trade has been swifter: the global equity crash has been twice as bad. "It's a depression alright. The good news is that the policy response is very different. The question now is whether that response will work," they said.
The elastic was bound to snap back, just as it did in the bear rally of early 1931. Whether the underlying economy has begun to heal is another matter. World Bank chief economist Justin Yifu Lin said capacity utilization is running at an historic low of 50pc-60pc. Companies will have to fire a lot of workers. This is where the danger lies, and why he fears that deflation is creeping up on us.
Trade data from Asia are flashing warning signals again. Korea's exports were down 28.3pc in May, reversing the April rebound. Malaysia has slipped to -26pc, and India has touched a new low of -33pc.
US freight data is getting worse, not better. The Association of American Railroads said traffic was down 22pc in the third week of May from a year earlier. Canadian freight was down 34pc.
The American Trucking Association (ATA) said it saw fresh drops of 4.5pc in March and a further 2.2pc in April. Tonnage is down 13pc over 12 months. Bob Costello, the ATA's chief economist, said companies have not cut inventories fast enough to keep pace with declining sales. The contraction in truck volume has "accelerated".
Yes, the Baltic Dry Index for bulk shipping of resources has quadrupled since January, but this reflects China's bid to stockpile metals while prices are low.
Stephen Roach, Morgan Stanley's Far East chief, fears an "Asian Relapse", saying the region is prisoner to its fatal dependency on exports to the West. The export share of GDP has risen from 36pc to 47pc across developing Asia over the last decade.
"China's incipient rebound relies on a time-worn stimulus formula: upping the ante on infrastructure spending in anticipation of an eventual rebound of global demand," he said. The strategy cannot work this time because Americans have exhausted their credit, and their desire to borrow. Consumption will fall from its peak of 72pc of GDP to the "pre-bubble norm" of 67pc, if not more.
David Rosenberg from Gluskins Sheff expects Americans to retrench ferociously as 78m baby boomers face the looming threat of penury in old age. "The big story is that the personal savings rate hit a 15-year high of 5.7pc in April. I believe it could test the post-War peak of 15pc. Too many pundits are still living in the old paradigm of Americans shopping till they drop," he said.
If he is right, this will shatter the surplus economies of China, Japan, and Germany, unless they adjust fast to the new world order. Germany does not even seem to understand the problem it faces. Chancellor Angela Merkel lashed out last week at quantitative easing by the Fed, the Bank of England, and the European Central Bank, repeating the silly mantra that this will set off an inflationary storm.
How can it do so when the velocity of circulation has collapsed, and unemployment is rising everywhere? The Fed's "monetary multiplier" ended last week at 0.867, half its average of 1.7 over the last decade. The credit mechanism is still broken. This is what happened in Japan in its Lost Decade.
The ECB says the eurozone economy will contract until mid-2010, at best. Germany's trade association (Wirtschaftsverbände) warned Mrs Merkel last week that the credit drought threatens to become "life-threatening by the summer at the latest".
The list of countries in deflation is growing every month: Ireland (-3.5), Thailand (-3.3), China (-1.5), Switzerland (-1), Spain (-0.8), the US (-0.7), Singapore (-0.7), Taiwan (-0.5), Belgium (-0.4), Japan (-0.1), Sweden (-0.1), Germany (0).
Yet markets seem to think otherwise, and this has its own awful consequences. Inflation fears have driven 10-year US Treasury yields to 3.86pc, a full point above levels in March when the Fed intervened to force rates down. US mortgage rates have jumped to 5.29pc. Gilts have reached 3.92pc, and French 10-year bonds are at 4.05pc.
This bond revolt is enough to bring any global recovery to a shuddering halt. The irony is that those fretting loudest about inflation may themselves tip us into outright deflation, with all the perils of a debt compound trap. It is Angela Merkel who plays with fire.
http://www.telegraph.co.uk/
Market Reflections 6/8/2009
Talk of a Fed rate hike spread further Monday, making for continued selling in short-end Treasuries where the 2-year note rose another 13 basis points to end at 1.43 percent. Before Friday's better-than-expected jobs report, the note was yielding 90 basis points. Rising interest rates indicate that economic expectations are improving, and in this case quickly. Strength in Wednesday afternoon's Beige Book would further raise expectations as would strength -- and especially so -- in Thursday's retail sales report.
Though long Treasury yields are also rising, they're rising at a much slower pace than short rates, making for a flattening in the yield curve that reflects a movement out of safe-haven investments, in this case funds sidelined in the low yielding 2-year note, and an eventual movement toward higher returns, perhaps in the stock market. But the stock market hasn't benefited much yet, little changed on the S&P 500 at just under 940. Remember, stocks are up 40 percent from early March, a fact that is limiting buying spirits. Charles Schwab advised its clients on Monday to increase their exposure to the stock market, but suggested that they wait to buy on dips.
Big news in the session was a sovereign ratings downgrade for Ireland, news that pushed money into the dollar which rose nearly a cent against the euro to $1.3906. The strength in the dollar limited questions over inflation in the session, but inflation will be the inevitable concern should the economy actually begin to recover.
Talk of rate hikes, not the prospect of inflation, affected many commodities including silver, which aside from its value as a monetary substitute is also an industrial metal. Silver fell 2 percent from Friday to $14.95. Copper, zinc, lead and nickel also posted declines in the session.
Though long Treasury yields are also rising, they're rising at a much slower pace than short rates, making for a flattening in the yield curve that reflects a movement out of safe-haven investments, in this case funds sidelined in the low yielding 2-year note, and an eventual movement toward higher returns, perhaps in the stock market. But the stock market hasn't benefited much yet, little changed on the S&P 500 at just under 940. Remember, stocks are up 40 percent from early March, a fact that is limiting buying spirits. Charles Schwab advised its clients on Monday to increase their exposure to the stock market, but suggested that they wait to buy on dips.
Big news in the session was a sovereign ratings downgrade for Ireland, news that pushed money into the dollar which rose nearly a cent against the euro to $1.3906. The strength in the dollar limited questions over inflation in the session, but inflation will be the inevitable concern should the economy actually begin to recover.
Talk of rate hikes, not the prospect of inflation, affected many commodities including silver, which aside from its value as a monetary substitute is also an industrial metal. Silver fell 2 percent from Friday to $14.95. Copper, zinc, lead and nickel also posted declines in the session.
Monday, June 8, 2009
Double-Digit Bear Market Income
The Double-Digit Bear Market Income process involved buying depressed shares of the safest blue-chip companies in the world... companies like Microsoft, Procter & Gamble, Coca-Cola, and Verizon. The bear market drove shares of these companies down to mouth-watering valuations... and we bought when no one else would.
Most of these companies pay dividends in the 3% to 6% range... and most importantly, they raise their dividends year after year, which is great for compounding your wealth. Now, here's the other half of the process...
Last October, the VIX reached an all-time high of 89. The VIX is known as Wall Street's "fear gauge." It's an index that measures the price investors are willing to pay for protective options... the price of "portfolio insurance." People were paying extraordinary prices for options back then. This made it lucrative to sell "covered call options."
A covered call strategy is when you sell the potential future upside in a stock to another investor in return for a large fee, paid in cash, immediately. This fee is an "option premium." By collecting this option premium, it's easy to double or triple the income you receive from your stock positions. Your downside hasn't changed, except now you have the option premiums to pad your returns.
If you believe a stock is going to shoot the moon, you don't want to sell away your upside. But in a bear market, selling away upside on giant, stable companies for 12% upfront cash payments makes perfect sense. The cash payments give you both safety and income.
Take Coca-Cola as an example. We bought the stock for $42.27 in November, during the heart of the stock market crisis. Then we sold a May $47.50 call option against our stock. If Coke stock rallied past $47.50 in six months, we were required to sell it at $47.50. We earned $3.70 upfront in cash for selling this option...
Between November and May, we also received $0.82 in dividends from Coca-Cola. In other words, we made 11% cash income from our Coca-Cola investment in six months. Then the stock market bounced, and Coca-Cola's stock rose, too. We sold for $47.50 and made 18% on the stock price... for a total 30% return on investment.
We used the exact same technique to make...
· 15% from Altria (12% was cash income)
· 21% from McDonald's (13% was cash income)
· 28% from Microsoft (12% was cash income)
In the past few months, however, the stock market has calmed down. Since March, the VIX has declined from 50 to 30. We no longer have the "slam dunk" conditions we had... where traders were willing to pay us huge premiums.
I'm currently recommending holding off on opening new covered call positions. It's much more difficult to find great opportunities .
You should keep a close eye on the VIX. There's still plenty of danger out there... gigantic government debts... falling commercial real estate prices... rising interest rates. The VIX could easily return to the 35 or 40 area. If the VIX reaches these levels, the Double-Digit Bear Market Secret strategy is back on.
Most of these companies pay dividends in the 3% to 6% range... and most importantly, they raise their dividends year after year, which is great for compounding your wealth. Now, here's the other half of the process...
Last October, the VIX reached an all-time high of 89. The VIX is known as Wall Street's "fear gauge." It's an index that measures the price investors are willing to pay for protective options... the price of "portfolio insurance." People were paying extraordinary prices for options back then. This made it lucrative to sell "covered call options."
A covered call strategy is when you sell the potential future upside in a stock to another investor in return for a large fee, paid in cash, immediately. This fee is an "option premium." By collecting this option premium, it's easy to double or triple the income you receive from your stock positions. Your downside hasn't changed, except now you have the option premiums to pad your returns.
If you believe a stock is going to shoot the moon, you don't want to sell away your upside. But in a bear market, selling away upside on giant, stable companies for 12% upfront cash payments makes perfect sense. The cash payments give you both safety and income.
Take Coca-Cola as an example. We bought the stock for $42.27 in November, during the heart of the stock market crisis. Then we sold a May $47.50 call option against our stock. If Coke stock rallied past $47.50 in six months, we were required to sell it at $47.50. We earned $3.70 upfront in cash for selling this option...
Between November and May, we also received $0.82 in dividends from Coca-Cola. In other words, we made 11% cash income from our Coca-Cola investment in six months. Then the stock market bounced, and Coca-Cola's stock rose, too. We sold for $47.50 and made 18% on the stock price... for a total 30% return on investment.
We used the exact same technique to make...
· 15% from Altria (12% was cash income)
· 21% from McDonald's (13% was cash income)
· 28% from Microsoft (12% was cash income)
In the past few months, however, the stock market has calmed down. Since March, the VIX has declined from 50 to 30. We no longer have the "slam dunk" conditions we had... where traders were willing to pay us huge premiums.
I'm currently recommending holding off on opening new covered call positions. It's much more difficult to find great opportunities .
You should keep a close eye on the VIX. There's still plenty of danger out there... gigantic government debts... falling commercial real estate prices... rising interest rates. The VIX could easily return to the 35 or 40 area. If the VIX reaches these levels, the Double-Digit Bear Market Secret strategy is back on.
Quotable
“While payrolls slid by 345,000, much below the consensus guess, it was the usual hokey number, getting a lift from the wonderful birth/death model, which somehow summoned up 220,000 jobs and did so, magically, out of thin air. “The harsh truth is that, using the regular payroll data, a rather formidable 14.5 million people are out of work. Moreover, if we look at the category we feel gives a more accurate picture -- the so-called U-6 tally -- which includes people too discouraged to keep looking for a job and those working part-time because they can't find full-time slots, the unemployment rate shot up to a new high of 16.4%. That means that something around 25 million folks are effectively on the dole. Ugh!”
Alan Abelson, Barron’s
Alan Abelson, Barron’s
Saturday, June 6, 2009
THE OPTION STRATEGIST Weekly Updater 06/05/09
by McMillan Analysis Corp.
Stock Market
$SPX broke out to the upside on Monday, easily overcoming the various resistance levels (January highs, May highs, and 200-day moving average). It then proceeded to pull back and test the breakout successfully, before advancing again today. Since none of our indicators are on sell signals, the path of least resistance is to the upside.
The 920-930 level now represents support (Wednesday's pullback reached a low of 923). Below that is the 20-day moving average, near 910. A violation of that average would be unpleasant in that it would indicate that the upside breakout was false. However, that wouldn't necessarily end the bullish phase that the market is currently in. A close below 880, however, would turn the picture negative.
The equity-only put-call ratios remain on buy signals, even as they are at very low levels on their charts. They will remain bullish as long as the ratios continue to decline. Only an upturn in the ratios would generate sell signals.
Market breadth moved back into overbought territory with Monday's large upside breakout day. The number of individual stocks that simultaneously broke out to new relative highs was extremely large. This is bullish action.
Volatility indices continue to decline, in general. That is bullish as well. $VIX remains near 30, which is still a very lofty level (which is why the daily movements in $SPX are still quite large). But as long as it continues to trend lower, it will remain on a buy signal.
In summary, the situation remains bullish, although overbought conditions indicate that sharp, but short-lived declines are possible at any time.
Note:
Please CLICK HERE to view this week's charts.
VISIT HERE to get the commentary plus recommendations.
Stock Market
$SPX broke out to the upside on Monday, easily overcoming the various resistance levels (January highs, May highs, and 200-day moving average). It then proceeded to pull back and test the breakout successfully, before advancing again today. Since none of our indicators are on sell signals, the path of least resistance is to the upside.
The 920-930 level now represents support (Wednesday's pullback reached a low of 923). Below that is the 20-day moving average, near 910. A violation of that average would be unpleasant in that it would indicate that the upside breakout was false. However, that wouldn't necessarily end the bullish phase that the market is currently in. A close below 880, however, would turn the picture negative.
The equity-only put-call ratios remain on buy signals, even as they are at very low levels on their charts. They will remain bullish as long as the ratios continue to decline. Only an upturn in the ratios would generate sell signals.
Market breadth moved back into overbought territory with Monday's large upside breakout day. The number of individual stocks that simultaneously broke out to new relative highs was extremely large. This is bullish action.
Volatility indices continue to decline, in general. That is bullish as well. $VIX remains near 30, which is still a very lofty level (which is why the daily movements in $SPX are still quite large). But as long as it continues to trend lower, it will remain on a buy signal.
In summary, the situation remains bullish, although overbought conditions indicate that sharp, but short-lived declines are possible at any time.
Note:
Please CLICK HERE to view this week's charts.
VISIT HERE to get the commentary plus recommendations.
Weekly Market Update (6/5/09)
HEADLINE NEWS WEEK ENDING 6/5/09
Overview
The US economy shed 345,000 jobs in May, about half the average monthly decline during the prior six months, suggesting the labor market may finally be turning the corner. more...http://payden.com/library/weeklyMarketUpdateE.aspx
US MARKETS
Treasury/Economics
Interest rates moved higher this week as the safe-haven demand for Treasuries continues to abate. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Large-Cap Equities
The stock market rallied during this first week of June due to better-than-expected macroeconomic data. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Corporate Bonds
Investment grade primary activity remained robust with financings from a handful of large issuers. New issue concessions ranged from 0 to 25 bps, reflecting the market’s strong appetite for bonds. more...
http://payden.com/library/weeklyMarketUpdateE.aspx
Mortgage-Backed Securities
Mortgages suffered from general bond market apathy as yields breached the upper bound of the recent trading range on less bleak economic reports. more...
Municipal Bonds
While we witnessed more volatility in Treasuries this week, we saw rather modest changes in municipal bonds, as measured by the Thomson Financial Municipal Market Data (MMD) curve. more...http://payden.com/library/weeklyMarketUpdateE.aspx
High-Yield
The high yield market began the month of June in steady fashion, with strong performance driven by continuing large cash inflows. more...http://payden.com/library/weeklyMarketUpdateE.aspx
INTERNATIONAL MARKETS
Western European Equities
European stocks rose this week extending their third straight weekly gain. 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 +5.9% this week, while the Russian stock index RTS went up +5.7%. more...
http://payden.com/library/weeklyMarketUpdateE.aspx
Global Bonds and Currencies
With equity markets continuing their upward march and the latest US payroll data surprising on the upside, the past week put pressure on major non-US sovereign bond markets, although the sell-off in 10-year bonds was less marked than that experienced by 10-year US Treasuries. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week, as risk appetite remained strong on the back of continued encouraging economic data. more...http://payden.com/library/weeklyMarketUpdateE.aspx
For more information, please contact 800 5-PAYDEN or visit payden.com.
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Overview
The US economy shed 345,000 jobs in May, about half the average monthly decline during the prior six months, suggesting the labor market may finally be turning the corner. more...http://payden.com/library/weeklyMarketUpdateE.aspx
US MARKETS
Treasury/Economics
Interest rates moved higher this week as the safe-haven demand for Treasuries continues to abate. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Large-Cap Equities
The stock market rallied during this first week of June due to better-than-expected macroeconomic data. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Corporate Bonds
Investment grade primary activity remained robust with financings from a handful of large issuers. New issue concessions ranged from 0 to 25 bps, reflecting the market’s strong appetite for bonds. more...
http://payden.com/library/weeklyMarketUpdateE.aspx
Mortgage-Backed Securities
Mortgages suffered from general bond market apathy as yields breached the upper bound of the recent trading range on less bleak economic reports. more...
Municipal Bonds
While we witnessed more volatility in Treasuries this week, we saw rather modest changes in municipal bonds, as measured by the Thomson Financial Municipal Market Data (MMD) curve. more...http://payden.com/library/weeklyMarketUpdateE.aspx
High-Yield
The high yield market began the month of June in steady fashion, with strong performance driven by continuing large cash inflows. more...http://payden.com/library/weeklyMarketUpdateE.aspx
INTERNATIONAL MARKETS
Western European Equities
European stocks rose this week extending their third straight weekly gain. 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 +5.9% this week, while the Russian stock index RTS went up +5.7%. more...
http://payden.com/library/weeklyMarketUpdateE.aspx
Global Bonds and Currencies
With equity markets continuing their upward march and the latest US payroll data surprising on the upside, the past week put pressure on major non-US sovereign bond markets, although the sell-off in 10-year bonds was less marked than that experienced by 10-year US Treasuries. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week, as risk appetite remained strong on the back of continued encouraging economic data. more...http://payden.com/library/weeklyMarketUpdateE.aspx
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Friday, June 5, 2009
U.S. job losses
U.S. job losses softened markedly last month, sending one of the strongest signals yet that the severe recession may be winding down. Nonfarm payrolls slid 345,000 in May, the U.S. Labor Department said, well below the 525,000 decline economists expected. The drop was the smallest since September 2008, when the recession intensified in the wake of the collapse of Lehman Brothers. The unemployment rate, which is calculated using a survey of households as opposed to companies, jumped 0.5 percentage point to 9.4%, the highest level since August 1983. http://online.wsj.com/article/SB124420479347588831.html#mod=djemalertNEWS
Market Reflections 6/4/2009
Improvement in the latest jobless claims report is tangible, though unfortunately precedes what are certain to be major layoffs in the auto sector. Still, the news raised hopes for improvement in tomorrow's jobs report, helping the stock market where the S&P 500 gained 1.1 percent to just over 940.
Chain-store sales reports were mostly weak though perhaps not weak enough to offset strength in vehicle sales and likely strength in sales at gas stations. Retail sales for May, which will be very closely watched following two prior months of disappointment, will be posted next Thursday.
Some call this year's strength in commodities a monetization of tangibles, reflecting doubts over the long-term value of the dollar. Commodities rebounded sharply following yesterday's sell-off, raising wide talk that investment demand, not commercial demand, is on the rise. Oil broke over $69 before ending at $68.80.
The gains in commodities underscore concerns of inflation, concerns also evident in the steepening of the Treasury yield curve where the 10-year note jumped 16 basis points to 3.70 percent vs. no change for the 2-year yield at 0.91 percent. The dollar index was slightly lower at 79.44.
Other news included the civil charges of insider trading against Angelo Mozilo, former CEO at mortgage firm Countrywide Financial that was at the center of the 2007 sub-prime meltdown.
Chain-store sales reports were mostly weak though perhaps not weak enough to offset strength in vehicle sales and likely strength in sales at gas stations. Retail sales for May, which will be very closely watched following two prior months of disappointment, will be posted next Thursday.
Some call this year's strength in commodities a monetization of tangibles, reflecting doubts over the long-term value of the dollar. Commodities rebounded sharply following yesterday's sell-off, raising wide talk that investment demand, not commercial demand, is on the rise. Oil broke over $69 before ending at $68.80.
The gains in commodities underscore concerns of inflation, concerns also evident in the steepening of the Treasury yield curve where the 10-year note jumped 16 basis points to 3.70 percent vs. no change for the 2-year yield at 0.91 percent. The dollar index was slightly lower at 79.44.
Other news included the civil charges of insider trading against Angelo Mozilo, former CEO at mortgage firm Countrywide Financial that was at the center of the 2007 sub-prime meltdown.
Thursday, June 4, 2009
The fate of GM
Magic Act: Conjuring Up a Profit at GM Like a magician who artfully controls his audience's attention, the government's General Motors investment is all about financial diversion. Here's the fancy trick: It won't be very hard for a revamped GM to succeed at making a buck. Its debts will be cut from about $73 billion to about $17 billion. Its labor costs will be reduced by as much as $2 billion a year. On Wednesday, GM got even more help. GMAC, which funds dealers and car buyers, began issuing $3.5 billion in three-year debt backed by the federal government. This should cost GMAC about 2.2% annually. Ford Motor Credit just priced a five-year bond. It's paying 8%. "New GM" will thus have a far easier road to turning a profit over the next 12 to 18 months. And you can bet that first profitable dollar will be cause for celebration in Washington and Detroit. But let's break the magician's credo and show how the trick works. Beneath the magician's table is a black box. It happens to be stuffed with about $65 billion in cash. That's taxpayer money. Some $20 billion of it was given to GM over the past few months, and another $30 billion is being used for the company's reorganization. About $15 billion of it goes to support GMAC, which the Obama administration says is essential to keeping GM alive. Like any lender, the government would be expected to demand this money be repaid. But that's not really happening here. Save for $8 billion in debt and another $2.1 billion in preferred stock, the money is being converted into an illiquid 60% stake in GM. Why didn't the government take more debt and less equity in GM? It worried that GM couldn't bear the interest expense. Explained another way: The new GM may "succeed" at getting to profitability, but only as much as taxpayers have absorbed tens of billions of losses in upfront equity. GM's Fritz HendersonIn President Obama's view, this is all part of the path to helping "this iconic company rise again and move toward profitability." Measuring it as an investment, it appears nearly impossible that taxpayers will get their $65 billion in equity back. The government's 60% stake backs into an implied GM market capitalization of about $70 billion. It will support another $26 billion in debt and preferred stock owed to the U.S. Treasury and the UAW. GM's best market cap was $60 billion in 1999, when it was cranking out high-margin SUVs. Even with huge amounts of debt and other liabilities, GM produced record annual revenue of $176 billion. Also, its pretax, preinterest profit margins were a stellar 12.6%. With the bankruptcy plan, GM will have shed four brands, its majority-ownership stake in GMAC and most of its European operations. Roughly speaking, this might put its annual revenue at about $100 billion. Assuming GM can return to Ebitda margins of 10% (they're currently negative) would mean GM's earnings power will have been cut by over half compared with a decade ago. What is that revenue stream worth? Through most of this decade, one of the world's best car companies, Toyota Motor, has been valued at about eight times its cash flow to enterprise value. Say an outside investor is willing to value GM's cash flows at six times. Roughly speaking, that makes GM's equity worth $33 billion, meaning taxpayers' stake would be worth only $20 billion, less than half their original $42 billion equity investment. And that doesn't include the uncertain fate of the $15 billion given to GMAC. Still, one day in 2010 or 2011, GM will declare itself profitable. The government's bailout plan will be hailed. But it will be an illusion created by taxpayers' black box of billions.
Milton Friedman on Greed
http://www.youtube.com/watch?v=RWsx1X8PV_A&feature=player_embedded
This is the classic answer to the burning issues of the day; by a Nobel Prize winning economist
This is the classic answer to the burning issues of the day; by a Nobel Prize winning economist
Government's Most Destructive Policy Yet
Right now, the so-called Waxman-Markey bill is snaking its way through the greasy halls of Congress.
"Waxman-Markey" is the name given to the new "cap and trade" bill designed to limit America's carbon emissions. It looks like it's the most expensive thing to hit the economy since the financial crisis began.
Even the normally mild-mannered Wall Street Journal called it "one of the most ambitious efforts to re-engineer American social and economic behavior in decades, presenting risks and opportunities for a wide array of businesses from Silicon Valley to the coal fields of the Appalachians."
First off, the stated objective of cutting carbon emissions by 83% by 2050 will go down in history as outrageous – akin to when Who drummer Keith Moon drove his Lincoln Continental into the pool at the Holiday Inn. I think members of Congress must be smoking the same thing Moon was.
To show you how patently ridiculous such a goal is, I turn to Questar's CEO, Keith Rattie. Questar is an oil and gas company. Rattie is an engineer. He has been in the business since the 1970s. He walks us through the basic math in a speech he made at Utah Valley University on April 2 called "Energy Myths and Realities." Rattie uses Utah as an example:
Utah's carbon footprint today is about 66 million tons per year. Our population is 2.6 million. You divide those two numbers and the average Utahan today has a carbon footprint of about 25 tons per year. An 80% reduction in Utah's carbon footprint by 2050 implies 66 million tons today to about 13 million tons per year by 2050. If Utah's population continues to grow at 2% per year, by 2050, there will be about 6 million people living in our state. So 13 million tons divided by 6 million people equals 2.2 tons per person per year.
Question: When was the last time Utah's carbon footprint was as low as 2.2 tons per person? Answer: Not since Brigham Young and the Mormon pioneers first entered the Wasatch Valley and declared, 'This is the place.'
You can extend this math over the whole country – a growing mass of 300 million people. To meet the Waxman-Markey bill's goals would mean we have to go back to a carbon footprint about as big as the Pilgrims' at Plymouth Rock circa 1620.
So I think the bill is absurd. I think it is also a great blow to what is left of American industry. But this is the way the world works. Politicians do dumb things.
Agriculture. Agriculture, for whatever reasons, is exempt from the new rules. So farmers don't have to worry about those manure pools out back or the flatulent cows emitting methane all over God's green meadows. Those big tractors? Burn up that diesel! Agriculture is a winner by virtue of not losing, like a hockey team that skates to a tie.
Steel. Big loser. U.S. Steel, AK Steel, and even foreign steel companies with U.S. operations all get a big kick in the family jewels on this one. Steelmaking emits all kinds of carbon dioxide. The worst-case scenario here is that the U.S. simply won't be making steel at some point in the future. The plants will all go to Brazil. China is already the biggest steel producer in the world. Now we just handed the country a bunch of new business. Avoid big steel in the U.S.
Oil refiners. Losers. This is an industry in which it is hard to make money most of the time as it is. Now, under the new bill, refineries are really screwed. Basically, they are on the hook for about 44% of U.S. carbon emissions. They would be among the biggest buyers of carbon emission allowances. I think with one stroke of the pen, the U.S. government just made the U.S. refining industry that much smaller. Lots of these older refineries will just have to close. U.S. imports for gasoline will rise.
I think the refinery industry already sees the writing on the wall. This is one reason why Valero, the biggest U.S. refinery, has been quick to get into the politically favored ethanol business. It's also expanding overseas. Avoid the refineries.
Trading desks. Winners. It figures. As if the government doesn't help financial firms enough, it is going to hand them a nice tomato in trading carbon credits. The head of Morgan Stanley's U.S. emission trading desk said: "Carbon, while relatively small, is a critical piece of our commodities offering." So some financial firms with trading desks in carbon get a nice little payday.
To sum up, this is only the beginning. At the end of the day, this obsession with carbon footprints means that Americans are going to have to pay a lot more for products that use fossil fuels. It means we are going to pay a lot more for energy. Obama and his crew can draw up whatever fantasies they want, but they can't repeal the laws of economics, which, like forces of nature, win out every time.
So there will be plenty of losers.
"Waxman-Markey" is the name given to the new "cap and trade" bill designed to limit America's carbon emissions. It looks like it's the most expensive thing to hit the economy since the financial crisis began.
Even the normally mild-mannered Wall Street Journal called it "one of the most ambitious efforts to re-engineer American social and economic behavior in decades, presenting risks and opportunities for a wide array of businesses from Silicon Valley to the coal fields of the Appalachians."
First off, the stated objective of cutting carbon emissions by 83% by 2050 will go down in history as outrageous – akin to when Who drummer Keith Moon drove his Lincoln Continental into the pool at the Holiday Inn. I think members of Congress must be smoking the same thing Moon was.
To show you how patently ridiculous such a goal is, I turn to Questar's CEO, Keith Rattie. Questar is an oil and gas company. Rattie is an engineer. He has been in the business since the 1970s. He walks us through the basic math in a speech he made at Utah Valley University on April 2 called "Energy Myths and Realities." Rattie uses Utah as an example:
Utah's carbon footprint today is about 66 million tons per year. Our population is 2.6 million. You divide those two numbers and the average Utahan today has a carbon footprint of about 25 tons per year. An 80% reduction in Utah's carbon footprint by 2050 implies 66 million tons today to about 13 million tons per year by 2050. If Utah's population continues to grow at 2% per year, by 2050, there will be about 6 million people living in our state. So 13 million tons divided by 6 million people equals 2.2 tons per person per year.
Question: When was the last time Utah's carbon footprint was as low as 2.2 tons per person? Answer: Not since Brigham Young and the Mormon pioneers first entered the Wasatch Valley and declared, 'This is the place.'
You can extend this math over the whole country – a growing mass of 300 million people. To meet the Waxman-Markey bill's goals would mean we have to go back to a carbon footprint about as big as the Pilgrims' at Plymouth Rock circa 1620.
So I think the bill is absurd. I think it is also a great blow to what is left of American industry. But this is the way the world works. Politicians do dumb things.
Agriculture. Agriculture, for whatever reasons, is exempt from the new rules. So farmers don't have to worry about those manure pools out back or the flatulent cows emitting methane all over God's green meadows. Those big tractors? Burn up that diesel! Agriculture is a winner by virtue of not losing, like a hockey team that skates to a tie.
Steel. Big loser. U.S. Steel, AK Steel, and even foreign steel companies with U.S. operations all get a big kick in the family jewels on this one. Steelmaking emits all kinds of carbon dioxide. The worst-case scenario here is that the U.S. simply won't be making steel at some point in the future. The plants will all go to Brazil. China is already the biggest steel producer in the world. Now we just handed the country a bunch of new business. Avoid big steel in the U.S.
Oil refiners. Losers. This is an industry in which it is hard to make money most of the time as it is. Now, under the new bill, refineries are really screwed. Basically, they are on the hook for about 44% of U.S. carbon emissions. They would be among the biggest buyers of carbon emission allowances. I think with one stroke of the pen, the U.S. government just made the U.S. refining industry that much smaller. Lots of these older refineries will just have to close. U.S. imports for gasoline will rise.
I think the refinery industry already sees the writing on the wall. This is one reason why Valero, the biggest U.S. refinery, has been quick to get into the politically favored ethanol business. It's also expanding overseas. Avoid the refineries.
Trading desks. Winners. It figures. As if the government doesn't help financial firms enough, it is going to hand them a nice tomato in trading carbon credits. The head of Morgan Stanley's U.S. emission trading desk said: "Carbon, while relatively small, is a critical piece of our commodities offering." So some financial firms with trading desks in carbon get a nice little payday.
To sum up, this is only the beginning. At the end of the day, this obsession with carbon footprints means that Americans are going to have to pay a lot more for products that use fossil fuels. It means we are going to pay a lot more for energy. Obama and his crew can draw up whatever fantasies they want, but they can't repeal the laws of economics, which, like forces of nature, win out every time.
So there will be plenty of losers.
Goldman Sachs: Expect oil prices to soar to $85 by December
Wall Street's largest commodity dealer Goldman Sachs is bullish on oil. This week, Goldman raised its end of year target price from $65 to $85.
Goldman cites all the usual suspects... dwindling supply growth from non-OPEC members... increasing demand. The firm ads that oil could hit $100 by 2010.
Goldman cites all the usual suspects... dwindling supply growth from non-OPEC members... increasing demand. The firm ads that oil could hit $100 by 2010.
Wednesday, June 3, 2009
Market Reflections 6/3/2009
Reports that Asian economies see little alternative to the dollar even if U.S. credit ratings are cut tripped big gains for the currency, rising 1.4 percent on the dollar index to 79.55. The gain in the dollar made for a rush of profit taking in commodities which for the last month have benefited from dollar weakness and resulting demand to hedge against inflation. Grains showed some of the deepest losses with wheat down 7 percent on the session. Silver fell 5 percent to $15.35 with gold down 3 percent to $962. Oil also fell 3 percent to end just below $66.50.
A run of soft economic data didn't help. ADP's count is pointing to another month of severe, but perhaps no more severe, job losses, as did ISM's non-manufacturing report that also showed a surprise decline in new orders, a sobering reminder that recovery is still well down the road. The S&P 500 fell 1.4 percent to 931.79. Demand for Treasuries rose with the 10-year yield down 7 basis points to 3.54 percent. In congressional testimony, Ben Bernanke played down the recent rise in long Treasury yields. He offered no surprises and no changes to the Fed's asset purchase plan.
A run of soft economic data didn't help. ADP's count is pointing to another month of severe, but perhaps no more severe, job losses, as did ISM's non-manufacturing report that also showed a surprise decline in new orders, a sobering reminder that recovery is still well down the road. The S&P 500 fell 1.4 percent to 931.79. Demand for Treasuries rose with the 10-year yield down 7 basis points to 3.54 percent. In congressional testimony, Ben Bernanke played down the recent rise in long Treasury yields. He offered no surprises and no changes to the Fed's asset purchase plan.
A bit sick of it all…The dollar will remain the reserve currency. Period!
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
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
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.
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