Globally we're looking at positive economic headline numbers and indicators around the world, while the political headline risk is much more extreme than it was in 2008.
Positive employment growth, low interest rates, and positive economic growth numbers are present in most major markets, with most attention focused on the Euro area, UK, China, Japan, and the USA. In support of economic stability and growth, there is a sense of creditworthiness of both companies and governments. Recently, both Puerto Rico and Greece have been able to tap the global debt markets, and France continues to be in good standing with credit agencies despite zero positive reforms since 2008.
Political risks are omnipresent, and the fate of the financial markets depend on the outcome of the current battle of the headlines. Further Russian involvement in Ukraine is certain; the escalation of competing territorial claims by China and Japan continues; crude oil exporters are politically, and in some cases economically, unstable (Russia, Iran, Iraq, Libya, Venezuela, the 'Stans, and now, with elections and rating downgrades, even Brazil).
Current scenarios include a derailing of the Japanese economy as a result of economic sanctions/barriers to trade between China and Japan - this would be an economic shock to the Japanese economy and would totally derail Abenomics, resulting in political instability and the re-emergence of the question of Japanese creditworthiness. A failure of diplomacy would not be as immediately dire for China, but, if Japan was to claim the loss of any internationally recognized territory to China, the USA would be forced to retaliate, and this would take the form of economic sanctions. Full economic sanctions would cripple the Chinese economy. Escalating political problems between China and Japan could, in retrospect, be identified as a black swan event.
The situation in Ukraine is developing in such a way that it's hard to see a positive resolution. Gazprom, and Transneft and other Russian commercial interests are obviously damaged. Within Ukraine there are pro-Russian "separatists" in the east, and Ukrainian nationalists favoring nationalizing Russian owned assets - both give rise to the excuse for continuing Russian incursions. In Ukraine it could very well be that we're looking at a gigantic black swan unfolding its wings and readying for flight. Ironically, whether the EU recovery will be crippled by these events will be decided in Zug, Switzerland - where the Nord Stream AG shareholders and board include the "who-is-who" within both the EU commercial and political elite, all headed by an ex-secret police/intelligence officer from former East Germany.
There is tremendous "positive" inertia supported by the economic headline numbers, but, equally, the realization of any of the current political risks could play havoc with markets. To date we have seen the high momentum (technology, social stocks) plummet from their 2013 lofty valuations. This rotation initially benefited large caps, but this last week has seen capital continue to rotate and US government bonds have become the ultimate beneficiary. Market price action clearly informs us that we are in a "risk off" environment.
No matter which set of headlines wins this round, there will be near term (within 6-24 months) price inflation in both soft and energy commodities, higher USD interest rates across the board, and a weaker Yen. These are all "non-binary" outcomes. In the short term, let's hope our friends in Zug manage to keep a lid on Ukraine, allowing us leisurely contemplation of political and economic problems in all the usual places.
Sunday, April 13, 2014
Friday, February 1, 2013
More Historic Commentary (TLT, NYMEX, UNG, AAPL, IYR, XHB, BUD, F, ELLI, VIX)
During the past year I've had the pleasure of sharing my ideas with a variety of market participants. For the record, this is a non-exclusive list of commentary sorted by ticker, and some updated commentary and charts:
**********
18 January 2013
[All the news was out last year. F may be the best of breed and worth consideration - but the global macro environment trumps the Detroit "love-in".]
[On 18 Jan I was trying to dampen some enthusiasm...]
**********
17 January 2013
[How to play the US housing market rebound; not my choices, some typical ETF problems, but possibly valid]
***********
16 January 2013
[It's always worthwhile paying attention to the basics]
[Price action trumps fundamentals and there really are some "sacred" technicals.)
***********
14 January 2013
[This is hopefully a sign of "healthy" paranoia. Hard to reconcile all the industry "fixing"' charges with a healthy autonomous VIX.]
***********
31 December 2012
[NOTE/WARNING: I've no access to the indenture - so treat this entry as "hearsay" - I'm not sure the current BUD would approve/acknowledge/accept this "story".
It was, to some of us with a sense of humor, an interesting underwriting at the time - successfully placed with all the usual institutions, largely under the radar. Recreational drugs are big business - frankly, I can't figure out a defensible public avenue for participating in the marijuana legalization "movement", but maybe BUD has a an old marketing plan they could retrieve from their archives - who knows. They could surrender some of their bottling/distribution business in the pursuit of their current merger/acquisition plans and replace lost revenue by becoming your helpful neighborhood "dealer".]
**************
11 January 2013
[Surely someone's got to be a winner in the nationalization of the agency RMBS sector... maybe it could be ELLI, but then again, maybe not.]
*************
30 May 2012
***********
12 April 2012
[UNG slippage due to its "reliance" on constantly rolling futures, and some background "reasoning".]
**********
18 January 2013
[All the news was out last year. F may be the best of breed and worth consideration - but the global macro environment trumps the Detroit "love-in".]
[On 18 Jan I was trying to dampen some enthusiasm...]
F is
international -Detroit show etc was probably nice, but it’s hard to
see European prospects looking good… And then there’s newly
competitive Yen. What are you projecting that makes F attractive, or
is it just a trade?
**********
17 January 2013
[How to play the US housing market rebound; not my choices, some typical ETF problems, but possibly valid]
IYR
is a real estate index linked product with about a 1/2% expense ratio
vs XHB which is also an index linked product, but only tied to home
builders, and with a slightly lower expense ratio. XHB has a much
smaller “float”, so, in the short run, it’s hard to make sure
that the NAV doesn’t go adrift, but over the long haul it’s
actually closer to its benchmark than the IYR (largely expense ratio
related).
[Note:
this entry was edited for clarity and spelling]
***********
16 January 2013
[It's always worthwhile paying attention to the basics]
[Price action trumps fundamentals and there really are some "sacred" technicals.)
On Apple
– wonder if there are any tactical asset allocation models that
will defend/preserve an investment once the 200 day moving average
is breached? It’s possible to analyze Apple, do the sums, assess
the news flow, look into the supply chain, etc and actually view it
as, on balance, a positive story, but the dismal technicals/price
action is going to force out some of the managers commonly clinging
to fundamentals – there’s no tactical asset allocation model
supporting ownership.
[corrected for typo errors]
***********
14 January 2013
[This is hopefully a sign of "healthy" paranoia. Hard to reconcile all the industry "fixing"' charges with a healthy autonomous VIX.]
Don’t
want to go all “zero hedge” on people or in any way cater to the
conspiracy theorists, BUT, the VIX, to most people, is a black box.
Set up by GS with discretionary management/admin etc by the CBOE.
Might be time to have a look under the hood…
***********
31 December 2012
BUD once issued some bonds which allowed them to do some pot market research. This was spelled out as an allowable expenditure from the proceeds – not sure the marketing exercise was carried out, and I’m not sure that today’s BUD is anything like it was back in the early 90s (at the time of the bond issue).
[NOTE/WARNING: I've no access to the indenture - so treat this entry as "hearsay" - I'm not sure the current BUD would approve/acknowledge/accept this "story".
It was, to some of us with a sense of humor, an interesting underwriting at the time - successfully placed with all the usual institutions, largely under the radar. Recreational drugs are big business - frankly, I can't figure out a defensible public avenue for participating in the marijuana legalization "movement", but maybe BUD has a an old marketing plan they could retrieve from their archives - who knows. They could surrender some of their bottling/distribution business in the pursuit of their current merger/acquisition plans and replace lost revenue by becoming your helpful neighborhood "dealer".]
**************
11 January 2013
[Surely someone's got to be a winner in the nationalization of the agency RMBS sector... maybe it could be ELLI, but then again, maybe not.]
Not sure
if they’re affected by the well-being of the agency MREITs (Annaly,
Two Harbors, AGNC etc). Investing in RMBS has been nationalized
thanks to QE Infinity – maybe ELLI could sign up the Fed, after all
they probably need all the help they can get to keep track of their
underlying mortgages ($40bn/month – forever).
*************
30 May 2012
[In response to a trader's perception that TLT=The Long Bond]
Hold on, hold on! Stop!
TLT is an ETF It ain’t the 30 year bond, and it’s not the 20 yr and it’s not the average of the two… it’s an attempt to replicate the 20+ year Barclays govt index. BUT, the ETF’s got slippage and expenses.
TLT is at 2008 levels – not the tracked index, not the long bond.
Back to your analyses…
***********
12 April 2012
[UNG slippage due to its "reliance" on constantly rolling futures, and some background "reasoning".]
The oil
and gas sector is pretty complex if you try looking at it as one
industry, but if you separate it into segments it’s easier to make
sense of the processes and operations involved. Upstream gas
operations are not complex, but once gas has been scrubbed and is
past the first compressor its all about infrastructure (including
storage), and it’s a good idea to have a look at the different
infrastructure components separately. If natty is a hit with
customers then that’s great, but for the foreseeable future it’s
infrastructure plays that will reflect that success. Haven’t seen a
well researched case for higher natty prices, and most folks have
correctly avoided the NYMEX “products”.
[...] before getting involved in natty it’s worth getting
a good understanding of the segment, and before betting on UNG it’s
good to have a look at the underlying NYMEX contracts (UNG might have
its day, but over time its the floor of NYMEX that soakes up the
cash).
[A final chart, with a final typo]
Thursday, January 31, 2013
For Record - an Update (NLY, TLT, TBT, MREITS, ABS, Treasuries, QE and Fed policy)
Events have overtaken this blog, so,
for the record, here is a selection of “time stamped”' commentary (from Seeking Alpha) with some concise notes/charts. For a not very concise look at Seeking Alpha contributions click here.
The selected commentary relates to Annaly Capital (NLY) and TBT, TLT, MREITS, Agency ABS, Treasuries, QE and Fed policy, and specifically ties in with prior blog posts “Still Twisting and Turning”, 24 May 2012, “Operation Twist Is Totally Skewed”, 22 March 2012. It's worth noting that Bernanke has, until very recently (in fact, more clarity was provided at yesterday's Fed meeting, but significant uncertainty remains), not defined concrete policy as it relates to QE.
Sep
20 03:35 PM
The selected commentary relates to Annaly Capital (NLY) and TBT, TLT, MREITS, Agency ABS, Treasuries, QE and Fed policy, and specifically ties in with prior blog posts “Still Twisting and Turning”, 24 May 2012, “Operation Twist Is Totally Skewed”, 22 March 2012. It's worth noting that Bernanke has, until very recently (in fact, more clarity was provided at yesterday's Fed meeting, but significant uncertainty remains), not defined concrete policy as it relates to QE.
**********
I was highlighting the term "value
investor" as it's not common to combine value investing with
being a technician. In your article you highlight chart patterns - no
one will miss that aspect of your analysis, but the "value
investor" aspect appears missing (at least in terms of a Ben
Graham inspired take on the term).
Your response to the "QE" issue is correct, at some stage it will end, but I'm sure you'd agree that the Fed's demand for agency paper drives up the price of these investments. No one is saying that 40 billion/month purchases is not affecting the agency paper market, and no one has succinctly identified the correlation between low agency backed mortgage rates and unemployment. Then again, maybe the Fed will proclaim "mission accomplished" if the unemployment rate hits 7.6% again, or maybe the program will be canned when Bernanke retires - who knows.
Now, your specific comment regarding QE 2 and 10 year yields... well, the purpose of the Fed's "Operation Twist", or whatever term people chose for it, was to reduce long term rates, so Fed open market activity favored longer term bonds. This explains the action of the 10 year versus the 30 year, and it'd be hard to avoid agreeing with the consensus - which is that the "twist" accomplished what the Fed set out to do (lower long term rates). That the economy rebounded is also true, but the interest rate environment was shaped by the Fed.
Back to QE 3. In a rate environment where the 30 year recently yielded less than 2.5% being happy with double digit yields is logical. But, we've seen that the Fed is a powerful force, and for the foreseeable future they've decided to decrease agency backed mortgage yields. While the Fed suppresses these yields they also engage in other substantial open market activities, but what it all amounts to, for MREITs, is a lot of uncertainty while they face increased reinvestment risks.
MREITs have been hurt by Operation Twist because mortgages tend to have long maturities, and QE "infinity" further damages their prospects as they have to compete for paper with the Fed.
Finally, is it logical to listen to MREIT senior management complain about the environment and trust that they've found a safe passage protecting shareholders' expectation of a double digit return? It seems like there's ample scope for hoping that things turn out well for MREIT investors - I'll leave you with a George Savile quote:
"Hope is generally a wrong guide, though it is good company along the way."
Your response to the "QE" issue is correct, at some stage it will end, but I'm sure you'd agree that the Fed's demand for agency paper drives up the price of these investments. No one is saying that 40 billion/month purchases is not affecting the agency paper market, and no one has succinctly identified the correlation between low agency backed mortgage rates and unemployment. Then again, maybe the Fed will proclaim "mission accomplished" if the unemployment rate hits 7.6% again, or maybe the program will be canned when Bernanke retires - who knows.
Now, your specific comment regarding QE 2 and 10 year yields... well, the purpose of the Fed's "Operation Twist", or whatever term people chose for it, was to reduce long term rates, so Fed open market activity favored longer term bonds. This explains the action of the 10 year versus the 30 year, and it'd be hard to avoid agreeing with the consensus - which is that the "twist" accomplished what the Fed set out to do (lower long term rates). That the economy rebounded is also true, but the interest rate environment was shaped by the Fed.
Back to QE 3. In a rate environment where the 30 year recently yielded less than 2.5% being happy with double digit yields is logical. But, we've seen that the Fed is a powerful force, and for the foreseeable future they've decided to decrease agency backed mortgage yields. While the Fed suppresses these yields they also engage in other substantial open market activities, but what it all amounts to, for MREITs, is a lot of uncertainty while they face increased reinvestment risks.
MREITs have been hurt by Operation Twist because mortgages tend to have long maturities, and QE "infinity" further damages their prospects as they have to compete for paper with the Fed.
Finally, is it logical to listen to MREIT senior management complain about the environment and trust that they've found a safe passage protecting shareholders' expectation of a double digit return? It seems like there's ample scope for hoping that things turn out well for MREIT investors - I'll leave you with a George Savile quote:
"Hope is generally a wrong guide, though it is good company along the way."
Nov
3 08:37 AM
**********
A
Low-Risk, High-Reward Way To Play American Capital Agency Now That
It Has Broken Down [View article]
The
strategy can be altered... but the problem you're up against is that
there aren't many options on MREITs which trade efficiently - you're
left buying the shares (entitling you to collect the dividends),
buying a put (to limit your risk), and selling a call (to reduce the
price of buying the put) as the most obvious strategy, but when you
look at the huge bid/ask spreads... Anyone who firmly believes that
these companies are not in peril, could try simply selling an
in-the-money call to mitigate some downside risk, but there's no way
to escape the fact that it's a minor and inefficient hedge.
Nov
2 09:32 AM
**********
A
Low-Risk, High-Reward Way To Play American Capital Agency Now That
It Has Broken Down [View article]
Also,
thinly traded options on AGNC makes this company, over time, a worse
vehicle than NLY. Even NLY is thinly traded... in fact, there's no
"efficient" MREIT options play - where positions can be
rolled with minimal slippage. MREIT options are for position traders.
Nov
1 07:35 PM
**********
Take
it to its logical extreme.. don't fight the Fed: liquidate the entire
portfolio, don't buy back any shares but wind up operations and
return the proceeds to shareholders, then delist and go
golfing.
"Managing" an agency portfolio right now equates to fighting the Fed. Share buybacks, expensive hedging strategies, lobbying in DC etc etc is not serving shareholders - only preserving management's pay packets. The Fed's program is a gift to managers ethical enough to cash up and exit the sector.
MREIT managers can easily protect shareholders interests - these are not large "head-count" firms, and they're not managing illequid assets (it's not like winding up GM).
"Managing" an agency portfolio right now equates to fighting the Fed. Share buybacks, expensive hedging strategies, lobbying in DC etc etc is not serving shareholders - only preserving management's pay packets. The Fed's program is a gift to managers ethical enough to cash up and exit the sector.
MREIT managers can easily protect shareholders interests - these are not large "head-count" firms, and they're not managing illequid assets (it's not like winding up GM).
Oct
31 06:16 PM
**********
Have
to add this... cashing up provides the best "risk adjusted
return" - maybe this term will get some people to look at the
situation again.
Oct
19 09:44 AM
**********
The
financially right thing to do is to sell out to the Fed (as per my
above comment - I wasn't joking).
The distortion caused by the Fed's current program is, right now, helping agency investors, tomorrow it will hurt these same investors as they try to find new paper.
Chances are that non of the MREIT managers will cash up, but that remains the right thing to do. Investors like picking through the rubble of failed industries, dreaming of the good old days and wishing for their return, but it's no way to professionally manage money. Gambling on the end of QE "Infinity" is an obvious mistake.
Finally, the reason the MREIT managers should sell out and exit the market is because they "can". These managers aren't employing tons of people, they're not loaded up with goodwill, intangible assets, glorious corporate headquarters and other illiquid assets. They have the option to wrap up, cover their repos and outstanding hedges, and return the cash (plus the "Fed" incentive bonus) to shareholders. The fact that they won't protect shareholders' interests we'll all put down to managerial greed and incompetence, but, in the final analysis, we won't say that they were powerless to do so.
The distortion caused by the Fed's current program is, right now, helping agency investors, tomorrow it will hurt these same investors as they try to find new paper.
Chances are that non of the MREIT managers will cash up, but that remains the right thing to do. Investors like picking through the rubble of failed industries, dreaming of the good old days and wishing for their return, but it's no way to professionally manage money. Gambling on the end of QE "Infinity" is an obvious mistake.
Finally, the reason the MREIT managers should sell out and exit the market is because they "can". These managers aren't employing tons of people, they're not loaded up with goodwill, intangible assets, glorious corporate headquarters and other illiquid assets. They have the option to wrap up, cover their repos and outstanding hedges, and return the cash (plus the "Fed" incentive bonus) to shareholders. The fact that they won't protect shareholders' interests we'll all put down to managerial greed and incompetence, but, in the final analysis, we won't say that they were powerless to do so.
Oct
19 09:35 AM
[Today's snapshot]
**********
**********
The
NLY buyback is a mistake - the reasons "why" are too
numerous to count... almost.
Seriously, a leveraged agency MREIT with the right management would take the Fed's higher bid (above current book value), cash out and hand over the proceeds to shareholders.
NLY and other leveraged agency investors are up against the Fed, and they'll keep being up against the Fed every single day until the Fed decides unemployment has hit some undefined target level. Linking unemployment with agency rates is beyond problematic - let's put it this way, there's probably not a single hedge fund manager out there who'd dream up the correlation (and these guys are used to dreaming up some pretty unusual and unsound correlations).
So back to NLY, management is supposed to work for shareholders - not scramble for a way to support the share price while they pursue an against-the-odds lobbying campaign in DC. Perhaps they're gambling on Romney getting in and all of QE Infinity being canned.... well, guess what, it doesn't change what they should do today: cash up and surrender - the leveraged agency industry has been nationalized!
Seriously, a leveraged agency MREIT with the right management would take the Fed's higher bid (above current book value), cash out and hand over the proceeds to shareholders.
NLY and other leveraged agency investors are up against the Fed, and they'll keep being up against the Fed every single day until the Fed decides unemployment has hit some undefined target level. Linking unemployment with agency rates is beyond problematic - let's put it this way, there's probably not a single hedge fund manager out there who'd dream up the correlation (and these guys are used to dreaming up some pretty unusual and unsound correlations).
So back to NLY, management is supposed to work for shareholders - not scramble for a way to support the share price while they pursue an against-the-odds lobbying campaign in DC. Perhaps they're gambling on Romney getting in and all of QE Infinity being canned.... well, guess what, it doesn't change what they should do today: cash up and surrender - the leveraged agency industry has been nationalized!
Oct
18 02:36 PM
**********
Anyone
quoting five year returns are going to be posting good numbers during
the next one to two years. We all recognize that historical returns
aren't a guarantee of future performance, but, in the "game"
of presenting performance, five year data sets have certainly been
more robust/representative than they're now - perhaps we need to look
at two and ten, or more, year data sets to develop a more balanced
view of performance. No doubt, 2013 will be a year offering the
marketeers fantastic five year statistics with which to mislead the
sheeple.
Back to the agency MREITs, now that the Fed is in the process of nationalizing the agency paper investment industry, its tempting to figure out some shorts... Best to wait for the halo effect of portolio appreciations to diminish first though.
Back to the agency MREITs, now that the Fed is in the process of nationalizing the agency paper investment industry, its tempting to figure out some shorts... Best to wait for the halo effect of portolio appreciations to diminish first though.
Oct
9 04:59 AM
**********
1.
Banks earn fees sourcing loans.
2. The Fed has effectively nationalized the agency mortgage investment industry.
3. MREITs will post higher book values, thanks to the Fed bid.
4. Fed action now, "QE3", is focused on the agency market - watch the other yields drift up and be thankful you're not under a mandate to invest in agency paper (like some MREITs).
The author's insights, concerns and analyses are all spot on, and he can probably afford to hold on for his last dividend payments. Let's see if any of the agency MREIT managers have the integrity to cash up (sell out to the Fed at the new higher bid).
2. The Fed has effectively nationalized the agency mortgage investment industry.
3. MREITs will post higher book values, thanks to the Fed bid.
4. Fed action now, "QE3", is focused on the agency market - watch the other yields drift up and be thankful you're not under a mandate to invest in agency paper (like some MREITs).
The author's insights, concerns and analyses are all spot on, and he can probably afford to hold on for his last dividend payments. Let's see if any of the agency MREIT managers have the integrity to cash up (sell out to the Fed at the new higher bid).
Sep
27 05:45 PM
**********
Mr
Schilling, thanks for posting and giving us a quick summary. If you
have the chance, in a report with comparisons, it'd be valuable to
look behind the headline numbers, have a look at the cash flow
statements, and, since your main worry is spread compression - assess
how you think profits will shape up under different conditions
(basically do a quick sensitivity study).
My contention is that the ongoing business of making leveraged investments in agency paper has effectively been nationalized. The Fed's $40 billion/month market action will cause MREITs to have negative spreads (the Fed's clearly stated that their focus is agency paper, and they've more than hinted at the fact that they'll tolerate higher inflation indicators). Agency MREITs will face higher finance costs, higher hedging costs, and lower yields on agency paper.
If we only faced spread compression then all would be good, relatively speaking.
I'm not short any MREITs... yet; it's probably worth holding off until their portfolio appreciations, thanks to QE3 have been processed, then have a look through their statements to analyze cash flow.
My contention is that the ongoing business of making leveraged investments in agency paper has effectively been nationalized. The Fed's $40 billion/month market action will cause MREITs to have negative spreads (the Fed's clearly stated that their focus is agency paper, and they've more than hinted at the fact that they'll tolerate higher inflation indicators). Agency MREITs will face higher finance costs, higher hedging costs, and lower yields on agency paper.
If we only faced spread compression then all would be good, relatively speaking.
I'm not short any MREITs... yet; it's probably worth holding off until their portfolio appreciations, thanks to QE3 have been processed, then have a look through their statements to analyze cash flow.
Sep
26 04:13 AM
[And now, today, one chart tells the story:]
**********
**********
The
Fed has nationalized the mortgage investment industry.
Driving agency debt values higher and yields lower via a constant purchase program until unemployment is lower leads to spread "compression" below zero.
Driving agency debt values higher and yields lower via a constant purchase program until unemployment is lower leads to spread "compression" below zero.
**********
"Yield
compression" is a term that implies constant positive numbers,
but in this headline dominated market "compression" may
result in a net negative yield - try that on for size if you're a
leveraged MREIT. Portfolio appreciation is great if you're a flexible
portfolio manager (you take your gains and move on), but if you're an
MREIT manager you're faced with a well defined mandate and no exit
(forced to stick with your core business of investing in mortgages)
options. Fed action in the mortgage market, until unemployment
numbers are down, may, depending on how much they distort the market,
create carnage. Finally, while the Fed recognizes that they're about
to massacre private mortgage investors, and while they'll agree that
this is a shame, an unemployment solution is the number one priority
- it's just unfortunate that their analyses have led them to link
nationalizing the mortgage market with getting people back to work.
Sep
18 03:00 PM
**********
The
term "spread compression" implies a squeeze, but perhaps
these terms are wrong, as they don't allow for a negative spread
environment.
The Fed is, no doubt, aware of what a negative interest rate equation would do to leveraged mortgage investors. The two questions are:
1. Will Fed intervention lead to a negative spread scenario for MREITs? As the Fed competes for mortgage books with other investors, yields will decrease (stated Fed objective); the concern is that the focus of the latest Fed action will drive these yields below the cost of shorter term debt finance.
2. Considering the Fed's mandate and current intentions, is it likely to act to preserve/respect the interests of leveraged mortgage investors? A mortgage market without private investors seems like a surreal situation, but if the Fed's open ended commitment, both in terms of time and funds, translates into flattening the mortgage paper yield curve while simultaneously creating yield parity with any and all forms of other paper, then there's no spread (and for private companies subject to a market which imposes a risk premium, a negative spread).
I'm wondering if the Fed has just told us that they're going to buy mortgage debt, come-what-may, until unemployment is lower... this is what they've said isn't it?
The Fed is, no doubt, aware of what a negative interest rate equation would do to leveraged mortgage investors. The two questions are:
1. Will Fed intervention lead to a negative spread scenario for MREITs? As the Fed competes for mortgage books with other investors, yields will decrease (stated Fed objective); the concern is that the focus of the latest Fed action will drive these yields below the cost of shorter term debt finance.
2. Considering the Fed's mandate and current intentions, is it likely to act to preserve/respect the interests of leveraged mortgage investors? A mortgage market without private investors seems like a surreal situation, but if the Fed's open ended commitment, both in terms of time and funds, translates into flattening the mortgage paper yield curve while simultaneously creating yield parity with any and all forms of other paper, then there's no spread (and for private companies subject to a market which imposes a risk premium, a negative spread).
I'm wondering if the Fed has just told us that they're going to buy mortgage debt, come-what-may, until unemployment is lower... this is what they've said isn't it?
Sep
17 05:35 AM
**********
Bernanke
believes targeting agency paper will drive down costs in the mortgage
market. The proposition is simple and is simply that: anything that
reflates the housing market and causes increased velocity/liquidity
will, at this juncture, have a series of positive knock-on
effects.
Bernanke might be right or wrong, the price to pay later might prove to be too high, but, right now, this is what the Fed have decided to do. And, right now, this has created a whole series of short and medium term trading/investment opportunities - and capital will be reallocated as fast as: 1. traders digest, 2. analysts analyze, 3. investment committees meet, 4. and investors are persuaded.
But back to Bernanke and the Fed again, if you've got their mandate what would you do (never mind the politicians, global agendas etc - as these are obviously nothing but wild cards in any game)? What I'm suggesting here is that the Fed move was basic and simple, and merely reflected 1. what they could do, and 2. something they've not already tried (the lack of skew shows us that this is not a "one, two" combo move).
Bernanke might be right or wrong, the price to pay later might prove to be too high, but, right now, this is what the Fed have decided to do. And, right now, this has created a whole series of short and medium term trading/investment opportunities - and capital will be reallocated as fast as: 1. traders digest, 2. analysts analyze, 3. investment committees meet, 4. and investors are persuaded.
But back to Bernanke and the Fed again, if you've got their mandate what would you do (never mind the politicians, global agendas etc - as these are obviously nothing but wild cards in any game)? What I'm suggesting here is that the Fed move was basic and simple, and merely reflected 1. what they could do, and 2. something they've not already tried (the lack of skew shows us that this is not a "one, two" combo move).
Sep
16 12:08 PM
In
the MREIT arena there's the concept of spread compression to
reconsider.
The Fed just verified that the basic business premise is sound (borrowing short term to buy longer term debt), but if the Fed targets the purchase of agency backed mortgage paper, then we can expect these assets to appreciate in value (in this current "risk on" environment, the "appreciation" may only be apparent in relation to other similarly rated and dated debt) - making it harder for the MREITs to continue benefiting from their basic business. In the medium term, this headwind will be offset by portfolio appreciation, but nobody is going forecast a maintenance of the spread.
It'd be interesting to do a few sensitivity studies to determine various spread compression vs asset appreciation scenarios. At a guess, the "mechanics" would look like this:
1. higher leverage = greater appreciation
2. longer duration = greater appreciation
3. fixed rate > ARMs appreciation
4. shorter term financing > longer term/hedged spread
Most of the MREITs have a mix of the above, plus, to outsiders, proprietary/"black box" repo/hedging programs... and then there'll be the people saying that a mere $40BN/month by the Fed in the agency market is irrelevant.
No MREIT exposure currently.
The Fed just verified that the basic business premise is sound (borrowing short term to buy longer term debt), but if the Fed targets the purchase of agency backed mortgage paper, then we can expect these assets to appreciate in value (in this current "risk on" environment, the "appreciation" may only be apparent in relation to other similarly rated and dated debt) - making it harder for the MREITs to continue benefiting from their basic business. In the medium term, this headwind will be offset by portfolio appreciation, but nobody is going forecast a maintenance of the spread.
It'd be interesting to do a few sensitivity studies to determine various spread compression vs asset appreciation scenarios. At a guess, the "mechanics" would look like this:
1. higher leverage = greater appreciation
2. longer duration = greater appreciation
3. fixed rate > ARMs appreciation
4. shorter term financing > longer term/hedged spread
Most of the MREITs have a mix of the above, plus, to outsiders, proprietary/"black box" repo/hedging programs... and then there'll be the people saying that a mere $40BN/month by the Fed in the agency market is irrelevant.
No MREIT exposure currently.
Sep
16 10:04 AM
**********
Not
taking sides here... but it's interesting to see that NLY have
recently increased their leverage. This is the same as admitting that
they've been wrong about the interest rate environment for the last
two, call it three years perhaps. NLY has been a conservatively
managed MREIT, of that there can be little doubt (though some might
argue any leveraged MREIT is not conservative enough), and they've
paid a price for their conservative stance: high share/FFO ratio (as
pointed out in this article), and high losses on all their hedges.
This might come across as a bit perverse, but if NLY shows a decrease
in their share price/FFO ratio combined with a reduction in hedging
losses (which would feed in to the ratio) then it has become a less
attractive proposition.
Now, here are the outstanding questions:
Have NLY management finally decided to adopt the consensus view on low interest rates "forever" (which would be evidenced by reduced hedging losses - nothing said about this will be as important as what's actually done)?
Have NLY management increased their leverage to coincide with a new interest rate model, or are they simply trying to maintain profits in a low margin environment (and will "pay the piper" by increasing their exposure to hedging losses)?
Now, here are the outstanding questions:
Have NLY management finally decided to adopt the consensus view on low interest rates "forever" (which would be evidenced by reduced hedging losses - nothing said about this will be as important as what's actually done)?
Have NLY management increased their leverage to coincide with a new interest rate model, or are they simply trying to maintain profits in a low margin environment (and will "pay the piper" by increasing their exposure to hedging losses)?
Aug
8 12:55 PM
**********
There
are a few assertions that seem frequent enough for us to try to gain
more clarity.
First, the Fed has indicated low short term rates well into 2014. This is not an absolute undertaking by the Fed, but, barring a market dislocation, any short term increases in financing costs affecting MREITs are likely to be minimal.
Second, the current low interest rate environment is good for MREITs. This contention is incorrect. While low short term rates is good for MREIT financing operations, these rates are combined with low long term rates which negatively impact MREIT profits. Low long term rates reduce MREITs' spread.
Third, MREITs should take advantage of low financing costs to increase their leverage, and maintain profitability in a low spread environment. This is another misconception. While MREITs incomes depend on their leverage, MREITs values depend on their portfolios' interest rate coupons. In a low interest rate environment, MREIT portfolios are subject to refinancing risks, but, in the current low spread environment, this risk is second to the risk of portfolio devaluation caused by a rise in long term interest rates. While there may be agreement that short term rates will remain low for the foreseeable future, long term rates are now rising and the consensus is that these rates are likely to keep rising as the Fed's Operation Twist "unwinds".
Less Fed participation in the longer duration Treasury markets will provide a MREITs with a larger spread. This contention is correct; and, the MREITs best positioned to take advantage of a widening spread will be those with the lowest leverage. MREITs entering a period of widening spreads (where long term rates are rising faster than short term rates) will see their existing portfolios decrease in value. While MREITs with portfolios with lower average maturities will be less affected than peers maintaining longer duration portfolios - net MREIT performance will be most affected by leverage and the rate of change in interest rates.
First, the Fed has indicated low short term rates well into 2014. This is not an absolute undertaking by the Fed, but, barring a market dislocation, any short term increases in financing costs affecting MREITs are likely to be minimal.
Second, the current low interest rate environment is good for MREITs. This contention is incorrect. While low short term rates is good for MREIT financing operations, these rates are combined with low long term rates which negatively impact MREIT profits. Low long term rates reduce MREITs' spread.
Third, MREITs should take advantage of low financing costs to increase their leverage, and maintain profitability in a low spread environment. This is another misconception. While MREITs incomes depend on their leverage, MREITs values depend on their portfolios' interest rate coupons. In a low interest rate environment, MREIT portfolios are subject to refinancing risks, but, in the current low spread environment, this risk is second to the risk of portfolio devaluation caused by a rise in long term interest rates. While there may be agreement that short term rates will remain low for the foreseeable future, long term rates are now rising and the consensus is that these rates are likely to keep rising as the Fed's Operation Twist "unwinds".
Less Fed participation in the longer duration Treasury markets will provide a MREITs with a larger spread. This contention is correct; and, the MREITs best positioned to take advantage of a widening spread will be those with the lowest leverage. MREITs entering a period of widening spreads (where long term rates are rising faster than short term rates) will see their existing portfolios decrease in value. While MREITs with portfolios with lower average maturities will be less affected than peers maintaining longer duration portfolios - net MREIT performance will be most affected by leverage and the rate of change in interest rates.
Apr
18 08:00 AM
**********
At
crucial moments correlations break down. So, if you use ETF puts to
hedge against a position in one of the ETF components, then you're
not hedged. If you find another historic correlation, chances are,
when things get ugly for your long position the correlation
evaporates. People are always chasing the "best of breed"
and using broader indexes to hedge. Over time you'll do well if
you're properly diversified - if you're not diversified and blessed
with some years left to live, you'll probably get to witness a
correlation breakdown which will hamstring your non-diversified
portfolio.
One of the reasons certain companies become institutional darlings is because they can be hedged - either because there's an active OTC or exchange traded option market for them.
One of the reasons certain companies become institutional darlings is because they can be hedged - either because there's an active OTC or exchange traded option market for them.
Mar
19 10:47 AM
**********
TBT
is a depreciating asset. On any given day it's maybe a 2x inverse,
but over time it's not. Too expensive to operate to maintain value.
Not saying it's not a good instrument, but its prospects as a long
term hedge by being long is poor.
Mar
10 02:42 PM
[And here is today's update:]
Friday, August 10, 2012
Drachmas, Dramas and Destruction Amidst the Summer Doldrums
First, there's the seemingly unending uncertainty over whether there'll be a new Greek Drachma. Despite strong indications that Greece is about to fire up their own printing presses (non-compliance with bail out terms, contracting economy, etc), the odds are that they'll stay in the union. If Greece "fails", market participants will increase their bets on "who's next", which will lead to Euro zone bailouts becoming increasingly more expensive (let's face it, even the ECB acting as a backstop is a bailout), and at some point this would be universally acknowledged as unsustainable. Once accepted, this would lead to the effective end of the Euro zone, the end of German exports to the Euro area, and a drastic decrease in German sales further afield - this will prove vastly more costly to Germany than a federalization of all Euro countries' debt issues; in fact, federalism will strongly support German industry (through a combination of a competitive global currency, and a large supportive "home market"). Recent German economic data strongly supports this view, but, of course, political interpretation could deviate. But, after the doldrums, the odds are for more barely-face-saving covert federal underwriting of the currency, unless... Unless Greek leftists manage to convince their electorate that the Euro is only a tool and extension of an imperialist pax-Germanica engineered to funnel all riches back to the fatherland, and that freedom, while not free, can only be bought by being a sovereign capable of printing.
On other stages other dramas are being rehersed. There's the US election (which, again, is earning its reputation as the "best entertainment money can buy" - provided you like a nice tragedy), the CHF is busy crippling segments of Switzerlands' non-diversified economy (while all banks continue to suffer and taxation initiatives continue to erode Swizerlands safe haven status), China desperately tries to both promote and control growth while giving the appearance of addressing issues of income inequality and access/corruption (recent high profile efforts would, in the parlance of the theater, surely be considered farcical), resource economies continue as two-speed economies (despite recent price pressures), and finally there's a moribund Japanese economy - escaping criticism only because no one has the energy left to criticize it.
For the most part people are optimists. US politicians continue to promise solutions. Chinese living in big cities will happily inform you that if you look straight up you can sometimes see that the sky is blue. Safe havens and resource economies (sometimes one and the same) while losing diversification and undermining their future prospects are universally envied. And, Japan's ever increasing debt burden is priced by the markets as sustainable. The obvious argument is, of course, that none of this is sustainable and we'll soon witness wealth destruction on a massive global scale. Frankly, there are too many scenarios to analyze, and, in some cases too little good quality data, so opinions proliferate while facts remain hard to find, but here's a takeaway:
The US 30 year bond, yields close to 2.8%, but if the US economy falters (more than it's already done), and if yields approach Japan's then the present value of the long bond will increase by around 25%. Odds are this won't happen, the USA is not Japan, but if Greek's decide on sovereignty then the long bond will destroy the market value of all in its path. So, in a low volatility environment, while the sheeple are captivated by the Olympic spectacle, it may be the right time to “cheaply” hedge some bets, and, feeling inspired by the gymnasts, perform some straddles – one thing is certain, volatility will be back.
Thursday, August 2, 2012
Gold
Gold. The utility of
this precious metal rests on its ability to be a concentrated form of
wealth. Its immutable nature gives it a permanent shine – not just
now, but throughout human history. Unlike silver and platinum, whose
fortunes wax and wane with their industrial applications, gold's
value is independent of its utility. Unlike precious gems, which can
be subjectively graded and valued, gold is a commodity – capable of
being perfectly standardized and objectively valued at a myriad of
transparent, liquid, and interconnected global markets. Gold is the
preeminent sign of wealth all over the world. Gold, hoarded in
government vaults, underwrites geopolitical power and imparts a sense
of tangible value to currencies.
Adopting a contrarian
perspective on the long term role of gold is futile. To argue that
humanity will leave gold behind and focus on new Apple products as
the ultimate sign of wealth is nonsense – the current crop of the
spendthrift ultra-wealthy will be encasing their new high-tech gadgets in
bejeweled gold cases, and spinning gold taps to brush their teeth,
while ordinary mortals will continue to aspire to own a gold trinket or
two. The combination of an increasing global population and
affluence will continue to drive the demand for gold as a display of
status and wealth, while economic uncertainties will guarantee its
place in diversified investment portfolios.
Gold is proclaimed as
the panacea for a wide array of troubles. In politically uncertain
times, gold is a perfect hedge. Its high density and value means it
can be easily transported and stored, which is good news both for
desert nomads and central banks, and it's widely acknowledged that in
an inflationary environment, gold is a hedge. This last decade,
“gold bugs” have been well rewarded for their appreciation of the
noble metal. During an extended period of falling interest rates,
decreasing dividends, and equity markets struggling to regain lost
ground, gold has more than doubled in value. As a “doomsday”
investment it has shown greater resilience than reserve currencies
and government bonds, and we are still waiting for it to take its starring role as the lead inflation fighter.
Now, let's have a look
at price action. From a technical perspective, gold has obviously
been in a multiyear bull trend, notable price action includes very
strong performance during the last half of 2007 continuing into 2008,
followed by a sell off combined with high volatility for the rest of
2008. 2009 marked the beginning of another leg in the bull rally,
with gold prices going parabolic in August 2011 before a “blow off”
top later that month, followed by a false continuation in September.
Since topping gold has remained volatile, and, while its trading
channel remains hard to define, it is narrowing. If the current
consolidation in gold continues and gold conforms to a “standard”
breakout from a lower volatility environment, then gold should be set
for its next directional move towards the end of this summer.
Despite gold's recent
price corrections, it remains in a major secular bull trend. Major
areas of support have been breached and the trend is questioned –
the first area has been breached (around 1600 – corresponding to
around today's level of 155+ on the above ETF, NYSE:GLD), the second
area of support is around 1300 (which, with GLD ETF costs will
probably equate to close to 130, as opposed to 125). While it's
possible to directly trade off these areas of support, the lowest
risk strategy is probably to sell puts targeting these supports –
incidentally, December GLD 150 contracts are trading at prices offering a
sound entry and a 3.6% holding period return, or about 9% annualized. This would never amount to a serious leveraged gold play, but as an "exposure to gold", or perhaps even as a commodity exposure this, or similar trades, deserve allocation.
In closing, some time ago, back in March (when I first thought that we were seeing a constructive consolidation price pattern begin to form) I had a conversation with a long time "gold bug" about miners' expense ratios. I confessed that I could not understand how gold could trade at more than twice its "cost" (many miners report costs of just a little more than USD700). The economic argument is simple: supply will ramp up until equilibrium is reached; lower grades will be exploited, higher fees will be paid etc etc. While I knew that this equation was subject to externalities, such as government regulations, and political risks, to name just a few, it's still hard to accept gold's "premium". To help overcome aversion to overpaying for gold (ignoring its historical roles as outlined above), the two major considerations are:
1. While miners are claiming low productions costs, supply remains inflexible due to the sector's inability to access capital (basically, investor trust was all but destroyed in the multi decade secular bear market that preceded the current bull market). It's also natural to conclude that today's capital markets present huge barriers to entry for any speculative capital intensive company.
2. Most mining operations exist in politically challenging environments. Whether it's a threat of nationalization, or simply permit risks; gold mining is a high risk venture and demands a big risk premium.
Establishing a long position in gold today implies that you're buying into these arguments (an adverse capital market, and risks galore - both political and environmental).
Thursday, June 21, 2012
Short - But Not Sweet (for the record)
Today has been a real capitulation day on several fronts. Equity markets are down, commodities are weak (oil and gas have collapsed), and most sovereign Euro bonds are diving. The US Fed's Mini-Twist response fails to address the slew of issues revealed by yesterday's US economic releases. The recent pledge to bail out Spanish banks has, in the mind of bond traders, already added €100B to Spain's impossible debt burden, and clearly demonstrated that German "style" initiatives are nothing but super sharp double edged swords. As market participants wake up to today's reality, and to make sure that we all know where we are, US banks are subjected to another round of downgrades (at this moment this is only conjecture, but the markets are currently trying to price in this probable eventuality).
So, is there anything positive happening? Yes, we're finally having a purge. Basically, today's price action makes more sense (in the face of negative news), than previous market reactions. Political issues have clouded sound judgement for too long, and today participants finally came to their senses and acted as they should have... a long time ago. Now the question is, will they over do it, or will they wake up to find that another government trump is in their hands? Today's capitulation will only be rewarding if there's a middle way.
So, is there anything positive happening? Yes, we're finally having a purge. Basically, today's price action makes more sense (in the face of negative news), than previous market reactions. Political issues have clouded sound judgement for too long, and today participants finally came to their senses and acted as they should have... a long time ago. Now the question is, will they over do it, or will they wake up to find that another government trump is in their hands? Today's capitulation will only be rewarding if there's a middle way.
Thursday, May 24, 2012
Still Twisting and Turning
This is a "for-the-record" type post and picks up on the topic of the previous entry, "Operation Twist Is Totally Skewed" of 22 March.
As an indicator for the long term US Treasury market, let's use NYSE:TLT, which was around 112 at the date of the article and has generated two (interest based) "dividend" payments for a combined $0.5735. Today TLT looks set to open around 123.50. Shorting TLT has resulted in a loss. Writing puts against the short position has more than covered the dividends. Provided short term, slightly out of the money puts were written the total loss on the position to date will have been around 4-6%.
NYSE:NLY, being the largest agency mortgage REIT (and the issue with the most actively traded options), is a reasonable indicator for the agency paper market. NLY traded around $16.20 on the 22nd of March, has paid a dividend of $0.55 and looks set to open around$16.50. Some additional income could have been generated by writing slightly out of the money covered calls.
On balance, world bond markets are still awaiting the final act of the ongoing Greek tragedy (The Final Act of an Entertaining Greek Tragedy, 30 January, 2012), and this last act has caused US treasuries to spike - now is the time to increase the short position (always remembering to partially hedge and generate cash to cover "dividends"). As to NLY and its ilk, maintain current positions, look forward to continuing dividends and establish partial hedges by writing calls.
As an indicator for the long term US Treasury market, let's use NYSE:TLT, which was around 112 at the date of the article and has generated two (interest based) "dividend" payments for a combined $0.5735. Today TLT looks set to open around 123.50. Shorting TLT has resulted in a loss. Writing puts against the short position has more than covered the dividends. Provided short term, slightly out of the money puts were written the total loss on the position to date will have been around 4-6%.
NYSE:NLY, being the largest agency mortgage REIT (and the issue with the most actively traded options), is a reasonable indicator for the agency paper market. NLY traded around $16.20 on the 22nd of March, has paid a dividend of $0.55 and looks set to open around$16.50. Some additional income could have been generated by writing slightly out of the money covered calls.
On balance, world bond markets are still awaiting the final act of the ongoing Greek tragedy (The Final Act of an Entertaining Greek Tragedy, 30 January, 2012), and this last act has caused US treasuries to spike - now is the time to increase the short position (always remembering to partially hedge and generate cash to cover "dividends"). As to NLY and its ilk, maintain current positions, look forward to continuing dividends and establish partial hedges by writing calls.
Thursday, March 22, 2012
Operation Twist Is Totally Skewed
This post should have been about gold, but instead it's another macro impact study of US government initiatives in the interest rate market - this is in part because the gold story has to remain in draft format until some "opinions" have been delivered, and in part because global concerns are yet again focusing attention on the US long term Treasuries. These concerns include a Chinese property implosion and general economic slow down, oil "inflation", and Euro zone credit issues (inquiring minds and anyone prone to worrying about economic facts, might even want to know who is going to make good on the Greek CDS).
Without further ado:
Anyone remember the purpose of Operation Twist? Good - you may want to skip the rehash and start with the next paragraph. Now, for those who failed to obsess over yet another attempt by Bernanke to resurrect the US housing market, here's a brief synopsis: late September last year the US Federal Reserve initiated a program to buy longer dated paper in an attempt to drive down long term rates; specifically, $400 billion held in short term paper (less than 3 years to maturity) was to be reallocated to longer term Treasuries. The program is set to finish this June. Lower yields in longer dated paper, as a result of increased demand by the Fed, should, the theory goes, "twist" the yield curve in favor of long term borrowers - AKA mortgage borrowers.
Back to reality. First, without trawling through a huge amount of data, how does a $400 billion "spend" on longer dated Treasuries stack up? Spread over up to ten months, in an uncertain global economic environment where liquidity in the multi trillion dollar Treasuries' market remains without compare, a spend of this magnitude is still important. Beyond its purchasing power, and of greater importance in the near term, there is the obvious headline power of a Fed program, and the "promise" that on-any-given-day contrarians can be "punished".
Trying to establish the medium term expectations that the Fed had for Operation Twist remains a challenge, but the Reserve Bank of SF published a working paper in February that tempts the reader to accept that a relatively minor effect of 15 basis points on the 10 year equates to "success". Extrapolating from Fed working papers (especially one that's not specifically dealing with assessing the effects of the current Operation Twist, but focused on comparing JFK's 1960s Nudge/Twist to Bernanke's QE1) is problematic, but at least we're dealing with Fed thinking/analysis and rationalizations. This time the "nugget" is that the Fed aren't likely to measure their success in the same way as the markets, or, for that matter, your average house owner. The Fed is likely to declare a 15bps impact over almost a year on the "10 year" as a "victory" - the rest of us probably won't be quite as excited, and now, with the return of higher long term yields, the program's headline power seems to be fading.
So, is this the end game? The US interest rate environment remains a very intriguing study. Conditions for a recovery in the housing market appear to be present - apart from the fact that the securitization markets (CMOs) are still in the process of being unwound and MREITs are decreasing leverage. As to banks... well, their traditional role (since the early 90s) has been to originate and bundle loans - a business that's still mired in law suits, and, perhaps inadvertently, hamstrung by the decreased spread c/o Operation Twist. This really is the point in time, a few months before the proposed end of the Twist, when it's become abundantly clear that the current skewed interest rate curve will, barring a global calamity, continue to steepen.
Take an interest rate curve reverting to "normal"; a deleveraging financial system; and a US Treasury keen to "profit" from low long term yields (playing along with Operation Twist will have restrained their ability to act - maybe now they'll even consider perps and 50s, like the UK), and it all adds up to... more of the same. That is, the economy has to do what is fundamentally important, which is to continue to write off and deleverage. Operation Twist gave us a temporary skew, some time to act, but it wasn't a victory (no matter what the Fed says).
In terms of positioning, as the yield curve becomes steeper and spreads widen, maintaining a positive cash flow short bias on the long bond continues to make sense. As long term yields continue to climb it becomes imperative to be paid to maintain this short to offset interest expenses. Targeting the increasing spread also allows for some interesting trades in the agency paper sector. Global concerns may affect these strategies in the short run, but the fundamentals now dictate a wider spread and higher long term yields.
Sunday, March 4, 2012
The Root of All Evil (Mk II)
This is not meant to be a third party "prop", but there's a lot of supposed data and statistics in the report linked below. As the stats are bound to affect the thinking of some influential participants, it's worth having a look. Of course, this report links in well with the Root of All Evil post of 25 January, but also ties in with the more recent Old Tricks and Future Headlines post of 22 February where it was mentioned that, "...some high profile hedge funds that have been investing [in housing] for the past couple of years are now coming out “talking their own positions” - which tells us that they've filled up with all the cheap housing they can afford and now are looking for the rest of us to give them a profit."
The basic idea here is that a turnaround in the US housing market is not apparent, and maybe a "touch" fabricated. Anyhow, have a look, keeping in mind that what you're looking at are "statistics".
http://www.corelogic.com/about-us/researchtrends/asset_upload_file360_14435.pdf
The basic idea here is that a turnaround in the US housing market is not apparent, and maybe a "touch" fabricated. Anyhow, have a look, keeping in mind that what you're looking at are "statistics".
http://www.corelogic.com/about-us/researchtrends/asset_upload_file360_14435.pdf
Monday, February 27, 2012
Fickle Market Sentiments
Every time I think about posting I promise myself to focus on being "concise", and, I admit, every time I fail. The markets always offer up news that needs to be interpreted, and each new event demands to be encapsulated within a theoretical framework. Anyhow, without further disclaimers:
This is the last week in February, and it's hardly started, but does anyone remember the positive market sentiment that marked the first week this month? I suppose that we should all become chartists and technical analysts and rise above the grimy world of headlines - leaving the world of sentiment driven investing to the masses, but, apart from attaining a Zen like state of mind, would it serve us better than striving to develop a robust theoretical framework based on fundamentals?
In the midst of the current market chop, it would be great to give some space to competing market analyses, and I would especially welcome commentary by advocates of technical analysis. Right now, US Treasuries are trading up while oil is down - which makes perfect sense since the IMF just managed to convince everyone, again, that it's in a muddle when it comes to sorting out some type of effective European stability fund. But, from a macro perspective this is not news, IMF inaction is a "given", what's important, for the Euro area, is greater stability on the back of existing pledges coming online via the ECB this summer. From a global macro perspective, sell the Treasuries on spikes and buy oil on dips - what do the chartists dictate?
Current weakness in European equity markets fits the global macro view, so today's action makes senses, but what about the lower futures for the US markets? Current US taxation legislation proposed by Obama has given participants cause for concern. The US is the home of many competitive, truly international companies (not just outsourcing one-trick-ponies like Apple), whose prospects would suffer if current double taxation provisions were changed (one day the media will wake up to the fact that this is what the recent discussions are actually about). It is almost certain that market participants will lose focus and forget about the importance of such proposed taxation changes, so, for the short/medium term - buy the dip! Unless, of course your charts tell you otherwise.
To conclude, feel free to throw some technical trading interpretations into the comments section - or make your own post!
This is the last week in February, and it's hardly started, but does anyone remember the positive market sentiment that marked the first week this month? I suppose that we should all become chartists and technical analysts and rise above the grimy world of headlines - leaving the world of sentiment driven investing to the masses, but, apart from attaining a Zen like state of mind, would it serve us better than striving to develop a robust theoretical framework based on fundamentals?
In the midst of the current market chop, it would be great to give some space to competing market analyses, and I would especially welcome commentary by advocates of technical analysis. Right now, US Treasuries are trading up while oil is down - which makes perfect sense since the IMF just managed to convince everyone, again, that it's in a muddle when it comes to sorting out some type of effective European stability fund. But, from a macro perspective this is not news, IMF inaction is a "given", what's important, for the Euro area, is greater stability on the back of existing pledges coming online via the ECB this summer. From a global macro perspective, sell the Treasuries on spikes and buy oil on dips - what do the chartists dictate?
Current weakness in European equity markets fits the global macro view, so today's action makes senses, but what about the lower futures for the US markets? Current US taxation legislation proposed by Obama has given participants cause for concern. The US is the home of many competitive, truly international companies (not just outsourcing one-trick-ponies like Apple), whose prospects would suffer if current double taxation provisions were changed (one day the media will wake up to the fact that this is what the recent discussions are actually about). It is almost certain that market participants will lose focus and forget about the importance of such proposed taxation changes, so, for the short/medium term - buy the dip! Unless, of course your charts tell you otherwise.
To conclude, feel free to throw some technical trading interpretations into the comments section - or make your own post!
Subscribe to:
Posts (Atom)