Thursday, September 20, 2007
Quality spreads continue to shrink in the corporate bond market. As the Fed reduces rates and creates more cash, the value of the US dollar declines. A cheaper dollar makes our exports more attractive to overseas consumers. The Commerce Dept. said that our exports have risen in each of the last five months.
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5 comments:
Hi Deborah,
Sorry for posting this here but your email address 'debweir@wealthstrategies.bz' does not appear to be working.
My name is Pravah and I’m writing from Pottsville Beach in northern New South Wales, Australia.
I’m enjoying working my way through your book “Timing the Market” at the moment.
I would be grateful if you could help me out by answering a question I have on Chapter 3 as I am keen to understand your book thoroughly.
I am wondering why one of the buy dates in Chapter 3 is revised to January 2 1991 and not April 1 1990? I ask this as in Appendix 3.1 it shows the money market curve has normalised at this earlier time and the yield curve is also normal in April 1990.
Also, I am wondering if you know if anyone has taken your book and applied the principles to the Australian bond and equity markets? I’m getting ready to attempt this myself but there’s no sense re-inventing the wheel if someone has done this already and would be willing to share their results.
Thanks for writing such a wonderful book and for taking the time to consider my email.
If you are able to respond my email address is prpugh@bigpond.com
Regards
Pravah Pugh
Pravah -- check this out....
Go to Appendix 2.1 on page 333. Let's dig into the sell signal on "2000-08-01" as an example. First of all, as Weir explains in her book on page 15-16, the Treasury data is a monthly average. The Three-Month Bill entry is 6.09. That is an average of the 3-month yields from 8/1/2000 to 8/31/2000 (using the daily rates from H.15 3-month Treasury Bill secondary market rate data). Since that is an average, it is known on 8/31/2000 at the earliest. The same is true for the Ten-Year note and therefore the yield spread. Other than the misleading date name in the table (2000-08-01), so far so good.
Now we have a signal to Sell on 8/31/2000, right? The S&P 500 Index for 8/31/2000 is 1517.68. (Yahoo's daily historical Prices for S&P 500 INDEX,RTH (^GSPC)). The "2000-08-01" entry in the book shows 1430 which is what the S&P 500 Index was for 7/31/2000, a month earlier. The same is true for all the entries in appendix 2.1.
So the question is: how is it that you can buy and sell an index based on signals you won't know until a month later?
I'm reviewing the data in appendix 2.1 and 2.2 taking into account the possible mistake and the 1 month time shift. The Ten-Year Note data is correct, but the Three-Month Bill data is skewed a month. After correcting for the 1 month skew, it doesn't hurt the return very much (Some trades are worse and some better). The return changes from 22.65X the original 1$ to 21.75X the original with the data corrections. I plan a full re-creation of the analysis to prove or disprove this book. For now it seems like it holds true, small errors that do not affect the conclusions made.
I'll pull in the data and work the spreadsheet to correct the trade dates. It may take me a couple of weeks to come to a conclusion.
Dear Pravah,
As far as I know, no one has specifically addressed the Australian market with yield curve analysis. However, because the shape of the curve reflects investors' buy;sell decisions; I assume that the analysis holds for any developed economy.
As to your other question - the book refines the decision-making process with several screens that change the dates accordingly.
All my best,
Deborah
Dear BAM and Anonymous,
I welcome any contributions to the investment world's body of knowledge. Human nature suggests that fear and greed drive the markets and that yield curves reflect investors' expectations for the future of interest rates. We are fortunate to have an indicator that is forward-looking and based on actual behavior rather than historical accounting data or earnings estimates.
Anything you can do to refine the information is much appreciated!
All my best,
Deborah
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