Timing the Market: How to Profit with Yield Curves

2012-02-08T13:20:00.000-05:00

The Fed has sold all of its real estate holdings in the Maiden Lane portfolio. The news release says, "Proceeds from additional asset sales that are allocated to the New York Fed will be included in the Federal Reserve’s remittances of income to the U.S. Treasury."

William C. Dudley, President of the New York Fed, said, "I am pleased with the continued interest in these assets and am especially gratified that the New York Fed's loan to Maiden Lane II will be repaid as a result of the sale announced today."

http://www.newyorkfed.org/newsevents/news/markets/2012/an120208.html

2012-02-08T12:15:00.000-05:00

You have good news from the Fed!

It has made substantial profits on the real estate investments acquired during the financial crisis. Now that the Fed is selling these mortgages at a profit, billions of dollars are going into the US Treasury. Some analysts call our central bank the "most profitable bank in the US."

http://newyorkfed.org/markets/maidenlane.html

2012-02-03T10:46:00.000-05:00

Victoria's Secret seems to be a beneficiary of the lower, 8.3%, unemployment rate. Sales at this bellweather store are +17% according to Bloomberg news.

Women drive consumer spending which, in turn, powers the US and global economy. No wonder the DJIA is up 140 points as of this writing!

2012-01-31T15:51:00.000-05:00

You might want to use this stock market indicator. It's based on fundamental economic analysis - the value of the S&P compared to the replacement value of its components. I didn't include it in my book becuase at the time of writing, it was neither simple nor free. Now you can see it in graph form at VectorGrader.com

Tobin's Q Ratio seems to be a pretty good indicator for the S&P 500 Index.

2012-01-25T15:47:00.000-05:00

The yield curve is getting steeper. This is often a sign of faster economic (and stock market) growth. I just got out of a meeting with some of the super-rich one-percenters. They are talking about a stock market "melt-up" and are positioning their portfolios to take advantage of this possibility.

Data for the graph is free at the U.S. Dept. of the Treasury: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

2012-01-24T12:22:00.000-05:00

Economists often scorn anecdotal evidence, but I've learned to give it some credence. Here's the latest anecdotal evidence of economic recovery.

People are getting jobs. New jobs, better jobs, additional part-time jobs. People in the most cyclical businesses, such as PR and marketing, are getting jobs. It's this last category that gets my attention. PR and marketing can be real bellwethers of the economy.

2012-01-19T14:22:00.000-05:00

Here's a contrarian indicator for the Chinese stock market. Pessimism about the Chinese economy is much higher than usual. Over 1000 articles last fall mentioned a crash in China. http://www.bcaresearch.com/

Such pessimism is often an indication of a strong buying opportunity.

2012-01-05T18:17:00.000-05:00

Is it time to buy gold? The moving average convergance/divergence line (MACD) just flashed a "buy" signal on StockCharts.com. http://stockcharts.com/h-sc/ui?s=%24GOLD

2012-01-03T12:40:00.000-05:00

Here's a great site for gold: http://www.goldprice.info/

2011-12-31T12:15:00.000-05:00

A great resource for investors is http://www.seekingalpha.com/. Here's an article by Zacks Investment Research that summarized the stock market returns for 2011 by country. The US is at the top of the list. Next year will probably be better for the US market as some of the uncertainty in Europe subsides.

The US consumer is spending again and driving our modest economic improvement.

http://seekingalpha.com/article/316799-2011-stock-market-returns-by-country?source=email_macro_view&ifp=1

2011-12-30T17:59:00.000-05:00

This year provided thrills and chills...but no stock market return. The S&P 500 went nowhere.

http://www.google.com/finance?q=INDEXSP:.INX#

2011-12-29T11:52:00.000-05:00

This year is ending with good news:

Four straight weeks of initial unemployment claims below the benchmark 400,000.
Italy's bond auction produced lower yields than a month ago.
Pending contracts for new home sales increased.
Retail sales are up.
Consumer confidence is up.

It's no wonder that the stock market is up as well.

2011-12-09T20:38:00.004-05:00

http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

The 3-mo. treasury bill is at an all-time low at 0.01% according to the NY Fed. Investors can't live on that return and may be driven into other asset classes, such as stocks, for better yields.

Date      1 mo   3 mo  6 mo   1 yr    2 yr   3 yr    5 yr    7 yr    10 yr   20 yr  30 yr

12/01/11 0.02   0.01   0.05    0.12   0.27   0.41   0.97   1.55   2.11   2.82    3.12
12/02/11 0.02   0.02   0.06    0.12   0.25   0.39   0.92   1.49   2.05   2.74    3.03
12/05/11 0.01   0.01   0.05    0.11   0.27   0.40   0.93   1.49   2.04   2.73    3.02
12/06/11 0.00   0.01   0.04    0.11   0.25   0.41   0.94   1.52   2.08   2.74    3.09
12/07/11 0.00   0.02   0.05    0.11   0.24   0.36   0.89   1.46   2.02   2.74    3.04
12/08/11 0.00   0.01   0.04    0.10   0.22   0.35   0.86   1.41   1.99   2.70    3.00
12/09/11 0.00   0.01   0.05    0.11   0.22   0.37   0.89   1.48   2.07   2.79    3.10

2011-12-08T16:47:00.000-05:00

Twenty-nine of the Dow 30 Industrials fell today. Only MacDonald's went up; cheap fun food has constant appeal.

The stock market generally goes up the day after investors sell so indiscriminately. (Trouble in Europe has been priced into this market for several months. Enough already!)

Tomorrow morning may be a buying opportunity.

2011-12-08T15:55:00.000-05:00

Jon Corzine has mastered the art of being a Capitalist. He will probably handle the MF Global bankruptcy in the most politically-correct manner and emerge with the least possible damange to himself.

The movie "Margin Call" has a similar character - and he escaped unscathed.

2011-12-02T14:12:00.000-05:00

One of the backbones of finance is short-term, unsecured loans to corporations known as commercial paper. These loans range from a few days to a few months in duration. They pay current expenses such as inventory and payroll. Increasing levels of CP suggests stronger business.

These numbers from the NY Fed are good news for the stock market. You can follow the CP market at http://www.federalreserve.gov/releases/cp/

Weekly (Wednesday) levels

Nov. 2 $ 979.7
Nov. 9 $ 967.7
Nov. 16 $ 999.6
Nov. 23 $ 999.7
Nov. 30 $1,002.1

2011-11-29T10:01:00.000-05:00

Economists shun non-scientific, annecdotal evidence. However, it is difficult to ignore the packed parking lots, standing-room only commuter trains and crowded streets of Greater NYC. These crowds started in the middle of November - before the holidays.

2011-11-22T11:52:00.000-05:00

Investors seem to have post-traumatic stress syndrome from the 2008 cirsis. They may be underestimating the value of improving economic indicators:

Declining initial unemployment claims - the lowest since last April
Increasing retail sales (0.1% in June to 0.6% in September)
Improving Purchasing Managers Index
Growing Consumer Sentiment Index (55.7% in August to 64.2% now)

2011-11-17T12:38:00.000-05:00

We have an unusual signal to buy stocks.

Conventional wisdom says, "Buy stocks when the dividend yield is higher than that of the 10-yr. note." The only trouble is, we haven't seen stocks yield more than fixed-income in many decades.
http://www.multpl.com/s-p-500-dividend-yield/

2011-11-15T12:16:00.002-05:00

Not much has changed since this 2009 interview.

2011-11-13T19:11:00.001-05:00

If you are in Greater NYC, please join us on November 16th for an update on how the indicators in my book helped, or hindered, you during this year's volatile market. The title of the presentation is "Free Information That's Easy to Use."

This is a "Special Interest Group" meeting of the American Association of Individual Investors. http://www.aaii.com/

We will meet from 6-7pm at Saint Jean Baptiste Catholic Church, 184 E. 76th St. (corner of Lexington Ave.) The church's phone no. is 212.288.5082 and the website is http://stjeanbaptisteny.org/

The event includes heavy hors d'ouevres from for which the general public pays a small fee. My guests are usually admitted for free, but you must let me know you're coming. DebWeir@WealthStrategies.bz

2011-11-07T11:04:00.000-05:00

Finally, some good news in the housing market! According to "The Economist" magazine, rising rents are helping the housing market recovery. http://www.economist.com/node/21536592

Higher rents encourage people to buy homes.
Higher rents encourage owners of homes to rent them out.
Fannie & Freddie may be able to sell their inventories of foreclosed properties to people who want rental income
Therefore, both the supply and the demand side of the problem may be addressed.

2011-11-04T10:17:00.000-04:00

Good news on the employment front! Maybe the Fed's efforts are paying off!

2011-11-03T10:11:00.000-04:00

Good news for business owners...bad news for employees: http://www.bls.gov/news.release/pdf/prod2.pdf

Higher productivity and lower labor costs will help this anemic recovery. The stronger recovery will produce more jobs, income, and a virtuous circle.

2011-10-27T12:53:00.000-04:00

The Fed has raised its probability of a double-dip recession from 1% to 7%. They state that, while this is a big increase, it's still a very small probability. Their updated estimate for 2012 GDP growth remains at a low level.

This data is free on the Federal Reserve Bank of Cleveland's website. It has just published the October issue of "Economic Trends." http://www.clevelandfed.org/research/trends/2011/1011/ET_oct11.pdf

2011-10-21T18:45:00.000-04:00

If you live in Greater NYC, please join us on November 16th. The American Association of Individual Investors will meet from 6-7pm at St. Jean's Church

Saint Jean Baptiste Catholic Church, 184 E. 76th is at the corner of Lexington Ave. (the Lexington Ave. Subway stops one block away.)
"Investment tools that are free on the Internet and Easy to Use." This lecture/discussion will be based on the book TIMING THE MARKET by Deborah Weir (Wiley & Sons, 2005) . Please RSVP to Deborah at DebWeir@WealthStrategies.bz.
I will discuss my book's application to this year's difficult market. A small fee at the door covers a great buffet supper; I will see if we can waive this cost for my guests.
The church's phone no. is 212.288.5082 http://stjeanbaptisteny.org/

2011-10-21T18:17:00.000-04:00

That all-important measure of investor confidence, the difference in yields between the10-yr. note and the 3-mo. bill, is improving.

The S&P has improved right along with this indicator; the index has increased over 100 points so far in October.

2011-10-11T13:05:00.000-04:00

A double-dip recession dominates the financial press. The Federal Reserve Bank of Cleveland, however, sees a healthier scenario.

http://www.clevelandfed.org/research/trends/2011/0911/et_sep11.pdf?WT.oss=september 2011 economic trends&WT.oss_r=347

2011-10-07T14:51:00.001-04:00

"Operation Twist," where the Fed sells short-term instruments in order to buy long-term ones, was expected to flatten the yield curve. That didn't happen this week; the curve became steeper. Are investors selling bonds to go into the stock market?

2011-09-30T11:59:00.000-04:00

Two useful indicators are the TED and the Libor/OIS spreads. Seeking Alpha has a great description and analysis: http://seekingalpha.com/article/296799-watch-the-ted-and-libor-ois-spreads-for-market-signals

2011-09-28T16:37:00.000-04:00

Bejing installed its first vending machine that sells gold. The machine dispenses up to $150,000 in bullion bars. China plans to install many more such machines.

Europe may have to print more money as it bails out the PIIGS, and this would be inflationary. The US may have to accept inflation as part of renewed economic growth. Both sources of inflation would increase the price of gold.

Now doubt, China is aware of these upward pressures on the price of gold.

2011-09-20T17:22:00.001-04:00

The S&P 500 dividend yield of 2.13% exceeds the 1.95% yield on the 10-year note. On a quarter-end basis, this has happened only 20 times since 1953. The following 12 months, the S&P 500 rose by an average 20%.

The past doesn't always repeat itself, and this bond market is heavily influenced by government purchases. However, this may be a good time to buy stocks.

2011-09-20T12:04:00.002-04:00

Extreme volatility, such as we're seeing now, is often a sign of a turning point in the market. Bulls and bears fight it out during inflection points.

This is usually the situation at market bottoms. At market peaks, everything just crashes when margin accounts get calls for cash.

2011-09-19T17:32:00.000-04:00

We are seeing a most unusual event.

Not since the middle of the last century has the yield on the 10-year note been lower than the dividend yield on the Dow Industrials. The 1.98% return on treasuries may push investors into higher-yielding securities...such as the Dow 30. There, they can get a whopping 3.07% return!

2011-09-07T10:50:00.000-04:00

The moving average convergence/divergence (MACD) line measures momentum. More information on this easy-to-read indicator is on StockCharts.com
http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:moving_average_conve

The current reading suggests that it's time to buy the S&P 500 Index.

2011-08-31T17:23:00.000-04:00

Aggressive investors can add risk to their portfolios now. Several major indicators are flashing "buy" signals:

The 3-mo./10-yr. spread is wider
The VIX is declining
Quality spreads are narrower

The global slowdown is already priced into the stock market. Investors may be looking through that slow period and into the next part of the cycle.

2011-08-27T18:34:00.000-04:00

In another sign that a double-dip recession is unlikely, corporate profits continue to be strong.

This graph is courtesy of the blog, "Seeking Alpha." http://seekingalpha.com/article/290055-anti-recession-indicator-corporate-profits-surge-to-new-high-in-q2?source=email_macro_view

2011-08-18T14:31:00.001-04:00

Unemployment is up and existing home sales are down. Also down are prices in the stock market and yields in the bond market. The ten-year note achieved a 70-year low of 1.99% during today's trading.

The yield curve continues to flatten as the VIX bounces back into the 40+ range. Stay on the sidelines until these two conditions improve.

Historically low mortgage rates may help pull us out of this quagmire. Off-shore money has been flowing into the US property market this summer.

2011-08-16T14:05:00.000-04:00

The US dollar became free to float from the price of gold 40 years ago yesterday.

http://finance.yahoo.com/news/Today-Marks-40th-Anniversary-wscheats-1950132810.html?x=0&.v=1

Gold was $35/oz. and bought 15 barrels of oil at $2.30/bbl. In May 1981, an ounce of gold ($480) still bought 15 barrels of oil ($32).

Now, gold ($1787) buys 20 barrels of oil. Which one of them is underpriced? (graph - courtesy http://www.bbc.co.uk/)

2011-08-15T15:23:00.000-04:00

People who know companies best, top management, are buying their own firms' stock. They are buying at the highest rate since the market bottom in March '09.

This Bloomberg article says that since 2004, there have been three S&P 500 companies with sellers for every company with buyers. That 3:1 ratio, according to InsiderScore, has reversed. Between Aug. 3 and Aug. 9, three times as many companies had buyers compared to those firms whose senior managers sold.

http://www.bloomberg.com/news/2011-08-11/insiders-buying-stock-at-highest-rate-since-march-09-as-s-p-500-drops-18-.html

You can follow senior management's activity, for a fee, on this website: https://www.insiderscore.com/index.php

2011-08-10T17:09:00.000-04:00

This stock market panic may continue until:

credit spreads start to narrow
the VIX begins to decline
the yield curve becomes steeper

At the moment, all of the major indicators discussed in TIMING THE MARKET (John S. Wiley & Sons, 2005), are negative and getting worse.

Fundamental economics are good: corporate earnings are strong, interest rates are low, the dollar is weak and the price of oil has declined. All of these items will, probably very soon, reverse this stock market.

2011-08-09T15:08:00.002-04:00

Some of the world's largest hedge funds want to own things that China will need.

These sophisticated investors are bargain-hunting in today's fire sale. They're buying equity in companies that provide the natural resources that China's growing middle class will require: food, energy, fertilizer, cement...

2011-08-08T08:42:00.003-04:00

S&P stripped US treasurys from their AAA rating. If US debt isn't as safe as it once was, why did the dollar rise against the Euro over the weekend?

There will be some great bargains in US equities when this panic gives way to reason. Keep an eye on the VIX and/or credit spreads for guidance.

2011-08-04T16:18:00.004-04:00

Aren't you glad that you waited for the VIX to turn around and start a decline before buying stocks!?! Continue to sit this out until the VIX starts a downward trend.

The intra-day VIX exceeded 31.5 for its largest one-day jump in two years. The S&P, on the other hand, suffered its worst decline since the bottom of this cycle in March of '09.

2011-07-29T10:02:00.005-04:00

Today's bad news includes the lower-than-expected GDP. The VIX, of course, is rising in response. Investors who are aware of the inverse relationship between the VIX and the S&P may want to buy equities when the VIX starts to decline.

Every president since Eisenhower has faced a fight over the debt ceiling. This year's battle is not new!

http://www.marketwatch.com/story/fights-over-debt-limit-have-long-history-2011-07-28?link=kiosk

2011-07-27T10:58:00.003-04:00

Signs of hysteria -

Four US firms may have higher ratings than US bonds in the future: Exxon Mobile, Automatic Data Processing (ADP), Johnson & Johnson and Microsoft. These corporate bonds are secure in their AAA ratings while the government, which can levy taxes, may lose this top rating. (similar to 1981 when IBM bonds had a higher price than US treasuries)

Money market funds are increasing their cash positions in case investors panic over the US debt situation.

Stocks are down again on worries about the debt ceiling...even though earnings are up.

2011-07-26T09:45:00.002-04:00

Fascinating biography of hedge fund manager George Soros: http://www.bloomberg.com/news/2011-07-26/soros-to-end-four-decades-as-hedge-fund-leader-by-returning-investor-cash.html

I have always admired his work and had the priviledge of meeting George in the late '80s. We don't always agree on politics, but he sure knows how to trade!

2011-07-20T08:41:00.002-04:00

For specific investment ideas, listen to my July 18 radio interview by Ann Kerrick in Westport, CT. The MP3 file is part of my profile page on this blog.

For more information on this radio personality, go to her website.
http://www.AnnKerrick.com

2011-07-19T14:21:00.002-04:00

The credit rating of US bonds was downgraded from AAA to AA today. Very few newscasters are reporting this event.

A private firm, Egan Jones, expressed their opinion of the size of our debt by lowering their rating on US bonds. Egan Jones sells their fixed-income rating service to institutional investors - read "buyers." Moodys and S&P get paid by the bond issuers - or "sellers." There's a big difference.

http://wallstreetpit.com/79665-egan-jones-officially-cuts-u-s-credit-rating

2011-07-18T16:14:00.003-04:00

In an unusual move, 29 of the Dow 30 Industrials declined in price today. This display of investor distain is usually an opportunity to buy stocks.

The fixed-income markets suggest that equities are OK to buy. Credit spreads (the 10-yr. treasury note yield minus the 3-month bill rate) continue to narrow.

Stock market technical indicators are also bullish. The VIX is still coming down while the put/call ratio is increasing.

2011-07-15T16:23:00.002-04:00

As expected, the S&P 500 Index is bounding around its bottom this summer. Many analysts believe that the debt ceiling will be raised and take some of the uncertainty out of the market. This may be a chance to buy on market dips.

2011-07-07T17:05:00.003-04:00

QE2 may be finished, but the Fed bought securities this week anyway. The Fed's balance sheet increased $5.7 billion last week. http://www.newyorkfed.org/markets/soma/sysopen_accholdings.html

Our central bankers must be serious about keeping interest rates low to stimulate GDP and employment. The stock market should benefit in this environment.

2011-06-30T16:20:00.003-04:00

There are many positive signals for the stock market:

The Merrill Lynch High Yield Constrained Index minus the 10-yr. note, a measure of investor fear, has declined.

The VIX is down.

The MACD line, a measure of historical price changes, is flashing a "buy" signal.

The treasury yield curve is steeper.

The Fed funds rate, at 0.07% is unusually low.

2011-06-27T19:14:00.002-04:00

BlackRock's strategist, Bob Doll, and David Darst, Morgan Stanley's investment strategist are bullish on stocks. They compare the current slowdown to the one last summer.
http://www.investmentnews.com/section/multimediabctid=1027116155001&playerType=CMwealth

2011-06-24T10:29:00.004-04:00

It's hard to buy equities at the bottom, but we will probably bounce around one this summer.

Interest rates are at an historic low. Private investors and institutions may need to buy dividend-paying stocks to augment their fixed income portfolios and meed their cash requirements.

The three-month bill was 0.15% in January and is now at a rock-bottom 0.01%! This is clearly a sign that the short-term fixed-income market is rich relative to other assets. Long rates may rise when the Fed stops propping up the bond market with its QE2 purchases. Cash may be dragged into higher-yielding assets...including equities.

2011-05-18T11:13:00.003-04:00

The value of the US dollar is half of what it was in 1984 according to the Federal Reserve. A devalued currency makes our exports cheaper than those of our global competitors. This is good for US business and helps us out of this period of slow growth.

2011-05-02T17:22:00.002-04:00

Banks are making more loans to businesses and to households. Manufacturing rates are up. The stock market may respond with an uptick.

2011-04-19T11:36:00.002-04:00

The Fed is at it again...adding new cash to the system. Today it made a permanent infusion in excess of $6 billion. Although this is part of QE2, it seems to help stabilize the stock market.

Permanent Open Market Operations (OMOs):

The purchase or sale of Treasury securities on an outright basis adds or drains reserves available in the banking system. Such transactions are arranged on a routine basis to offset other changes in the Federal Reserve’s balance sheet in conjunction with efforts to maintain conditions in the market for reserves consistent with the federal funds target rate set by the Federal Open Market Committee (FOMC).

2011-04-18T11:13:00.002-04:00

The Fed just bought $2 billion Treasury securities to hold indefinitely. This infusion of funds is probably designed to offset the declining prices in today's stock and bond markets...courtesy of S&P's downgrade for the outlook for US Treasury securities.

"Standard & Poor’s put a 'negative' outlook on the AAA credit rating of the U.S., citing a 'material risk' the nation’s leaders will fail to deal with rising budget deficits and debt."

2011-04-12T11:53:00.002-04:00

This economy appears to withstand bad weather, high energy prices and the end of government stimulus.

US rails are transporting increasing volumes of material for manufacturing. Recent increases are almost double the first-quarter growth during the 2003-2006 recovery period.

According to John Mims, a transportation analyst at BB&T Corp., “We’ve had no indications from the rails that they’re pulling back on their projections for strong commodity shipments throughout the year, which is a strong indication that industrial production will continue to improve.”

2011-04-08T12:16:00.004-04:00

Diligent reader, "Anonymous," noted that the Fed has dropped the commercial paper graphs from its website. He wisely contacted them to ask if we can get the graphs back.

The Fed responded that they'd consider his request if enough people asked for these graphs. You can make your request to reinstate these daily CP graphs by contacting the Fed at http://www.federalreserve.gov/feedback.cfm

I wonder how many central banks work with its citizens like this. We're lucky to live in the US and have these opportunities!

2011-04-07T10:05:00.003-04:00

Banks are easing their credit standards for large, private pools of cash. The end result could be growth in GDP and in the rate of inflation.

The Federal Reserve's quarterly survey of senior lending officers indicates that banks have lowered their credit terms (standards and interest rates) for hedge funds, insurance companies, and other private investors. This may be the first step in moving the new money that the Fed has printed into general circulation and could stimulate the economy. It could also stimulate inflation. http://www.hedgeworld.com/news/read_newsletter_aa.cgi?section=dail&story=dail18412.html

2011-04-01T12:35:00.003-04:00

Fed funds are extremely low at just 10 basis points today. It's common for the Fed to make this adjustment at the start of a new quarter and probably will not last more than a few days. QE2 and the rest of the global race to devalue currencies continue to keep rates low across the curve. High-yield bonds are particularly affected as investors reach for yield and drive up the prices of these securities. The high-yield/10-yr. spread, at 349 bp, is approaching its historical low of 325 bp several years ago.

2011-03-19T11:22:00.002-04:00

The fear that caused all 30 of the Dow Industrials to fall last week is now evaporating. The VIX is declining in a reaction to that new confidence in equities. It's time to add more risk to portfolios.

This graph is from Yahoo.com.

2011-03-16T16:47:00.003-04:00

Prof. Roubini of NYU remains bullish on equities. His optimistic outlook for fundamentals is based the fact that the tsunami and nuclear reactor problems are local events; they do not, in his opinion, affect global growth.

He is concerned, however, that panic could drive this market lower in the short-term. He's probably looking at the VIX with a double-digit increase today. (chart is courtesy of BigCharts.com)

My suggestion, buy equities when the VIX starts to decline.

2011-03-15T16:53:00.003-04:00

Investors are selling equities and buying US bonds in fear that Japan's problems will drag down the global economy.

What some people forget: China will continue to drive the global recovery. China is experiencing the largest human migration in the history of mankind as one million country dwellers move to Chinese cities every day. This human tsunami will sustain Chinese GDP growth and power the global recovery.

http://lucasmcgeeresearch.com/2010/11/05/instructive-charts-explaining-chinas-long-term-trends/

2011-03-11T15:46:00.003-05:00

The tsunami shut down manufacturing facilities in Japan - but not this new bull market.

US banks are slowly going back to the business of making loans. The commercial paper market is reviving according to the Fed's website. http://www.federalreserve.gov/releases/cp/

2011-03-04T15:43:00.005-05:00

Unemployment is under 9%.

The latest Employment Situation news release was issued today by the Bureau of Labor Statistics. http://www.bls.gov/news.release/pdf/empsit.pdf

We have added jobs for five straight months. Nonfarm payroll employment increased by 192,000 in February for an unemployment rate of 8.9 percent. Job gains were broad-based: manufacturing, construction, professional and business services, health care, and transportation and warehousing.

This is good news for so many of my friends who are still job-hunting. Finance was particularly hard-hit with about 20% of our jobs lost during The Great Recession (TGR).

Check out this great MSN video: Yield Curve Forecasts the Economy

2011-03-03T17:33:00.000-05:00

Fast-forward the introductory commercial...
MSN video: Yield Curve Forecasts the Economy

2011-03-01T12:46:00.004-05:00

Contrary to the Fed tightening that many analysts predict for 2011, the fed funds futures market suggests no change this year. The implication is that the Fed will wait until the unemployment rate drops to 6.5% - based on Bernanke's previous statements.

The test may be what the Fed does if core inflation hits 7.5% while unemployment is still high.

2011-02-23T18:31:00.003-05:00

This may be the correction that so many people are looking for. It could be a great buying opportunity.

The yield curve is still steep - especially the 3-mo./10-yr. spread.
The VIX , which increased an unusual 4 points today, is still in a normal range.
The put/call ratio is still in a range that supports owning equities.
Bond quality spreads, after widening for one day, are continuing to narrow.
Fed funds maintain their 0.15% level during QE2.

Importantly, Saudi Arabia has said it will supply enough oil to make up for losses from Lybia - the only OPEC country so far with civil unrest.

S&P's famous strategist, Sam Stovall, says, "The Energy Information Admin. (EIA) reports that the major Gulf countries in OPEC (ex. Libya) have spare capacity of 4.4 million barrels per day. According to IHS Global Insight, if WTI crude oil prices rise above $100 per barrel, then OPEC is likely to counter with increased production."

2011-02-12T17:34:00.003-05:00

Gold-to-Go ATM machines dispense gold bars rather than cash. The machine uses real-time prices and delivers gold in "precious gift boxes" according to the manufacturer's website http://www.gold-to-go.com/en/. Gold investor Marie Caesar found this piece of exotica which originated in Aub Dhabi and spread to Boca Raton and Las Vegas.

2011-02-09T13:24:00.004-05:00

Inflation fears are haunting the markets. When the Fed's $600 billion program to buy treasuries (QE2) ends this summer, it will deprive the bond market of the largest customer. A wider spread between the critical 3-month and 10-year securities expresses this fear.

History suggests that when this spread exceeds 350 basis points, we should buy gold. The current spread is 354 bp.

2011-02-03T12:40:00.002-05:00

The unrest in the Mid-East is spreading to Yemen.

" Feb. 3 (Bloomberg) -- Tens of thousands of Yemeni protesters, inspired by uprisings in Tunisia and Egypt, rallied in the capital a day after President Ali Abdullah Saleh tried to defuse tensions by agreeing to step down at the end of his term."

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aXXsue0d_Bv4&pos=9

This unrest could cause the price of oil to rise even higher. More expensive oil, which acts as a tax on many US products and services, may slow our economic growth. The stock market could have more modest gains as a result.

2011-02-01T14:20:00.002-05:00

Trouble in the Egypt, Tunisia and Jordan is creating fears of inflation instead of the usual flight to quality. Investors who use the shape of the yield curve probably expected this development. The curve is still very steep.

The long end of the curve is particularly indicative of inflationary expectations, and the 10 yr./30 yr. spread is wider than usual. Even the spread between the 20 yr. and 30 yr. is steep. These two issues often have a negative slope because life insurance companies need this long-term investment to offset their long liabilities.

Daily yield curves are on this free website: www.treas.gov

2011-01-20T11:57:00.002-05:00

ETF investors may enjoy Vanguard's new quarterly letter. It summarizes the developments in this arena and lists products, including those of its competitors, in an easy-to-read format. http://www.indexuniverse.com/docs/etfsinfocus/01182010-Vanguard.pdf?utm_source=newsletter&utm_medium=email&utm_campaign=ETFsInFocus

2011-01-19T14:49:00.003-05:00

Chicago’s Mayor Daley says he ‘wouldn’t doubt’ more cities may default on their debt. Cities are one entity that cannot "print" money and must balance their budgets. Here's the link to the Bloomberg article:
http://noir.bloomberg.com/apps/news?pid=20601087&sid=aGaxY6XMUThk&pos=7

Could this be one drag on today's stock market?

2011-01-18T15:12:00.005-05:00

There may be a stock market correction soon.

Stocks have had a long rally, and the put/call ratio (0.57) is below its critical value of 0.60. There are almost twice as many calls as there are puts. There is too much optimism and too little money on the sidelines for further investing. Here's the source: http://www.wallstreetcourier.com./index.htm

This correction could be brief because of the underlying growth of the economy.

2011-01-07T16:22:00.003-05:00

The outlook is good for the stock market.

The yield curve is steeply positive.
Credit spreads continue to narrow.
The VIX holds steady at 17.
Fed easing via QE2 is likely to keep the Fed funds rate low.

2010-12-27T17:49:00.003-05:00

http://www.federalreserve.gov/releases/cp/
It appears that commercial paper market participants couldn't get to work today. Twenty inches of snow in NYC shut down most of the transportation. There were even abandoned buses on the impassable streets of the city.

The Fed's CP graph came with this elaborate disclaimer, "Trade data insufficient to support calculation of the 15-day AA nonfinancial, 30-day AA nonfinancial, 60-day AA nonfinancial, 90-day AA nonfinancial, 1-day A2/P2 nonfinancial, 7-day A2/P2 nonfinancial, 15-day A2/P2 nonfinancial, 30-day A2/P2 nonfinancial, 60-day A2/P2 nonfinancial, 90-day A2/P2 nonfinancial, 7-day AA financial, 15-day AA financial, 30-day AA financial, 60-day AA financial, 90-day AA financial, 1-day AA asset-backed, 7-day AA asset-backed, 15-day AA asset-backed, 30-day AA asset-backed, 60-day AA asset-backed, and 90-day AA asset-backed rates for December 24, 2010. "

2010-12-16T15:46:00.003-05:00

Manufacturing production and capacity utilization have increased. The factory operating rate is the highest in two years. Both numbers are below their long-term averages, but this data adds to the trickle of good economic news.

2010-12-10T16:23:00.002-05:00

A weak dollar is making our exports cheaper. The Census Bureau says that US exports increased in October and caused our trade deficit to decline 3.2%. This growth in exports is helping to stimulate our economy, and the stock market should benefit.

2010-12-08T13:04:00.001-05:00

The VIX has been dropping all year as investors regain faith in the stock market.

Wall St. Courier has several important data points including the VIX, put/call ratio, and odd-lot short positions.
http://www.wallstreetcourier.com./index1.htm

2010-12-06T14:30:00.002-05:00

The Fed will sell $66 billion in new issues this week. At the same time, it will BUY $19 billion treasuries as part of the QE2 program.

It is good to be king...er...the Fed.

2010-12-03T15:23:00.002-05:00

Gold is over $1400/ounce in anticipation of increased inflation. The 10-yr./3-mo. spread is over the critical value of 250 basis points. Investors are fleeing the longer maturity and creating a spread of 285 bp.

Moderate inflation is good for the stock market. It usually means that the economy is growing and that firms can raise the price of their goods and services.

2010-11-22T13:17:00.002-05:00

Some hedge funds are buying hotel REITs as inflation protection. Hotels can raise their room rates every day as inflation heats up. To see more hedge fund investments, go to http://www.GuruFocus.com

2010-11-17T11:35:00.003-05:00

http://www.clevelandfed.org/research/trends/2010/1110/ET_nov10.pdf

China's foreign exchange reserves are primarily in US dollars. This account has grown by a factor of five during as many years.

Delegates from Huatai United Securities in Shenzhen, China were bright and enthusiastic members of the Asset Allocation seminar at the NY Institute of Finance. They taught me that their government bonds are tax-free to Chinese investors!

2010-11-11T11:10:00.001-05:00

The U.S. homeownership rate remained at a 10-year low of 66.9 percent in the third quarter, the U.S. Census Bureau said in a Nov. 2 report. This low rate is the result of foreclosures. The highest rate of home ownership is in the Midwest; the lowest is in the Southwest.

2010-11-10T15:35:00.004-05:00

The Fed will add over $1 billion to the system at the same time that bond quality spreads dip below average. http://www.highyieldblog.com/ Inflation fears may kick in about a year from now and devalue all US paper assets including stocks and bonds.

2010-11-02T16:57:00.002-04:00

The New York Institute of Finance is hosting a seminar based on TIMING THE MARKET (by Deborah Weir, Wiley & Sons, 2005). Research analysts from Huatai United Securities in Shenzhen, China will attend with their translators on Monday, Nov. 15th. http://www.nyif.com/courses/instructors/100001428.html

2010-10-22T11:20:00.002-04:00

The weak dollar is having an effect on our trade partners in Asia. The strength in emerging markets' economies and stock markets may become impaired.

Kevin Schultze, Managing Director at Stone & Youngberg writes:
"Exporting nations, especially in Asia, are in a state of near panic over the sharp drop in the value of the dollar and what this will mean for their economies which are heavily dependent on exports to the US. For these Asian nations, a weaker dollar means that the cost of their goods in the US will be higher...and less competitive - potentially causing a reduction in their domestic output... "

2010-10-20T14:11:00.002-04:00

Bridgewater Associates, LP is the largest hedge fund in the world; it has $88 billion under management.

Last night, this firm told the Stamford Chartered Financial Analysts' (CFA) Society that asset allocation is the key to managing risk. Bridgewater's method requires leveraging the 10-year treasury note 2:1 in order to match the volatility of equities.

Bridgewater implemented this strategy about five years ago, and it probably served their clients well during the crisis. One attendee wondered how that leveraged position in fixed income will serve them in the next five years...

2010-10-18T11:41:00.004-04:00

The velocity of money may be increasing.

When banks hold more reserves at the Fed than they are required to, they deprive the economy of the use of these dollars. There is also a decline in the speed at which each dollar changes hands. This rate of speed, or velocity, affects economic growth and inflation.

We have been trapped in a stagnant economic system because banks have hoarded so much of the new cash that the Fed created over the past two years. Banks have been parking this money in their accounts at the Fed. These reserve accounts at the Fed are shrinking. As banks put this money to work, they may boost economic growth and, ultimately, inflation.

2010-10-15T10:31:00.002-04:00

Record amounts of investment cash are flowing into India. Some analysts feel that the S&P CNX Nifty Index - 50 of the largest Indian stocks - is frothy and ready for a correction. I wonder if all of the emerging markets are overbought. The interest in them over the past few years has been extraordinary!

2010-10-14T19:12:00.003-04:00

I owe an apology to my readers and thank "Anonymous" for catching my error in arithmetic. The Fed's formula for predicting GDP growth suggests about 1% in 12 months. The current formula is GDP = 1.14417 + (-0.06132 X 3mo./10yr. spread).

You can see the Fed's monthly estimate for DGP growth as well as their current formula at http://www.clevelandfed.org/research/data/yield_curve

2010-10-14T19:03:00.004-04:00

I disagree with the idea that "robo-foreclosures" should depress the stock market. Today's headline is "U.S. Stocks Retreat as Banks Tumble on Foreclosure Concerns."

http://noir.bloomberg.com/apps/news?pid=20601087&sid=a33yNKvBEMMM&pos=2

In a meeting at John Paulson's office this week, his investors learned that a bank owned by his hedge fund - One West - will improve the documentation process for just a few million dollars. He expects other banks will do the same. Paulson & Co. feels that this issue is just a political smokescreen that will dissapate after the election.

2010-10-08T10:10:00.003-04:00

Fraud is still in the air...markets will have to fight investors' lack of confidence in major market participants. Larry Hagman won $10 million in punative damages against Citigroup to be paid to his favorite charities. He also won $1.1 million to cover his own losses.

Reuters 10/7/2010
Larry Hagman accused Citi in May 2009 of a breach of fiduciary duty and breach of contract, fraud by misrepresentation and omission, failure to supervise and violation of federal and state law, according to the ruling by an arbitration panel of FINRA, a self-regulatory body of the U.S. financial industry.

The allegations stemmed from unspecified securities held in Citi accounts, as well as the purchase of a life insurance policy.

Hagman received the unusually large award after the arbitrators found Citigroup Global Markets "engaged in serious misconduct," meeting FINRA's standards for punitive damages, the ruling said.

2010-10-08T09:50:00.002-04:00

The markets are reacting in a surprising manner to the disappointing unemployment data. Equity prices are increasing and bond prices are declining - just the opposite of what you'd expect. There may be two reasons:

Bond yields have dropped so much during the last month that investors may be resisting these low yields and high prices.
Private payrolls have improved for the past nine months and last month's figure was revised upward by 27,000.

2010-09-30T17:05:00.002-04:00

Odd-lot short sales have increased. This is a contrary indicator that says it may be a good time to buy stocks. www.wallstreetcourier.com

2010-09-30T09:46:00.002-04:00

The Federal Reserve just sent me the formula they use to forecast economic growth 12 months out. According to this regression analysis, we may see GDP about 2.56% next year at this time.

The formula is GDP = 1.14417 + (-0.06132 X 3mo./10yr. spread)

They use a rolling monthly average to get these co-efficients. Many thanks to Joseph G. Haubrich, Vice President - Research Dept. - Federal Reserve Bank of Cleveland.