Mebane Faber posted this chart to show the damage done in the US long bond thus far in 2009 and how it compares to past selloffs.I can't stand the term Mr. Market.
Lately you have no doubt read many articles about what type of rates of inflation may be coming our way. At the same time you have probably read a lot about the "inevitable" debt deflation coming our way.
This debate engenders a lot of passionate arguments on both sides. FWIW I expect inflation rates to become uncomfortably high but not double digits at some point in the next few years. I have had the same opinion for a while now which includes an acknowledgment that there has been an asset deflation. If you read an argument for deflation you may find it compelling, I do but I don't think it is crucial to get this call correct.
If demand for equities stays poor, stay defensive. If demand gets healthy, re-equitize. For bonds, if you aren't sure about inflation or deflation you could selectively seek out some foreign exposure, use TIPS, keep your duration short and not lock in long term to a yield you think is too low.
Barron's had an article about the defense contractors mostly driven off of work by analyst Rick Whittington (I seem to remember this guy as a tech analyst in the late 1990s; was he at a firm called Soundview?). Whittington seems to be split on the group expecting some stocks to go higher and others lower. It is an interesting call insomuch as if you look at the pure play names on the table in the article on a chart it is very difficult to find times where some stocks went up and some went down for more than a couple of weeks. Clearly they each take their turns leading and lagging but they don't really go in different directions.
I maintain a position in one of the defense contractors for the reason charted below. And whenever the US has not been under attack these stocks have tended to correlate closely with the Industrial Sector SPDR (XLI).
20 comments:
Roger, good morning. I hope you'll indulge a naive question on a Monday. I keep reading that the US government will own some 60% of GM, but I don't understand the structure. Is that debt or equity? Assuming that the government is sincere and doesn't want to be in the auto business, how will it be repaid?
Thanks very much.
i'm not certain the G will get paid back but candidly, and a point made before, since i've never owned GM or its paper I don't need to spend time seeking out the answer.
It's a loan. Debt. However, along the way the government has considered turning it into equity.
Roger. Did the S&P 500 just cross the 200 DMA?
intraday, apparently so
The VIX does not lie folks. It's going to take alot more shenanigans than this to shake me out of being short here.
I respect the consolidation pattern, but this is so engineered and phony its disgusting. There is no way I can get long this beast. Normally I would flip my positions here on a “breakout” like this and go long… I cant do that now for so many reasons.
For my one and only whine of the day… if the garbage that occurred on the tape at the close on friday had been in the other direction, there would be a huge rabble rousing for sure and it would be time to fry the shorts again.
Effing ridiculous.
Alright, back to trying to make some money in this rigged game
OK so if we stay above the 200 day moving average, I guess it is buying time on Wed morning. Can you tell us what you are going to buy so we can front run you?
Only kidding!!! :)
Best, Andrew
Well, on the VIX front - where does it stop looking bad? It's at 29 now. 20? 10?
I didn't know what VIX was, of course, until last October or so.
Roger can you explain this quote I read recently..I don't understand why the Fed would be reluctant..is it in regards to issuing more debt in the future at higher rates..what impact would higher rates have on the already outstanding debt? "The problem with government debt growing so much is that when the time comes and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”
Hi Roger, longish-term reader (I asked you about your Sterling-Dollar trade/hedge and you said you'd got out a few days early, I also 'heckled' you about the spelling of a certain metal).
So we're finally above the 200dma - I've been waiting for this for quite a while. Am eagerly awaiting your response, although I know you have mentioned it many times, if we stay above it for a couple of trading days.
Oh, I was also the one who asked you about India. But that being just before the election was only a coincidence - I have no holdings there and no knowledge of the country.
anon 8:34 not enough context from what you left but I can say that the government is paying interest on the debt. taking action that results in the market taking rates higher mkes future borrowing (which we know is coming) more expensive which would not be in anyone's interest. of course that assumes the gov is really paying interest as opposed to more money printing to foot the bill. no idea if that is what you are asking.
Andrew and anon 9:21 today we are "building" a trade to execute this week if circumstance dictates increasing exposure. We will be going big into beef jerky futures (JOKE JOKE JOKE). We will not second guess this move.Regardless of opinion we will stick to the discipline save for any logistical issues.
This is one of the downsides of following very simplistic and overused indicator like the 200 day moving average. The simple 200 day moving average came in at 927, which was snapped on the open, thus triggering a lot of short covering by everyone who sold into that M.A. The 200 day EMA comes in 944.50….interesting moment.
If that was a “triangle” that we broke out of (and it sure seems like it was), then the thrust from 887 should be limited to 75-125% of the maximum width of the triangle. This max level is 951.50. If 951.50 doesn’t provide resistance, then it wasn’t a typical triangle and we’re likely going to push into the 960s.
Look out for some whipsaw this week!
Roger,
Get ready with your powder. You have been waiting for this for over 18 months. If not today, hopefully this week. I know you said that you have a short waiting period after it crosses over. How long do you wait and at what point do you start moving in.
bwjr
So is it time to think about buying foreign stocks?
I'm not real sophisticated, but if you own stock in say, a French bank, then as the dollar goes down even if the bank isn't going anywhere price wise, the price of the ADR will go up. The only downside of this would be paying tax on the apparent profit.
You get the dividend put in your account same as any other stock, so you get paid in dollars.
Also, what's it mean if something is a gray market stock? Is that just a volume thing? I haven't looked at what Areva is trading for here run through a currency converter, but I'm betting that when I do, it's going to be almost the same price as the Paris exchange. It's got volume in Paris.
Roger, Is there a scenario will the government is still issuing massive amounts of debt but is also raising rates? Seems there would be no need to issue a ton more debt if you are in a situation where raising rates is an viable option.
You would have to raise rates if you couldn't sell all your debt.
re the whipsaw, yes maybe but it is also true that the 200 DMA is now coming down at a very fast rate.
bwjr i left a comment noting that i expect to trade later in the week, I have spent a couple of hours sorting a trade out.
re foreign, well i have liked foreign the whole time. go to pinksheets.com for a proper definition of grey market.
As far as the fed raising rates; some believe the fed is making this up as they go. to the extent that is a little bit true then anything is possible.
roger,
a rick whittington worked as a semiconductor analyst at pru in the early 1990s--he worked closely with laura conigliaro before she went to goldman. whittington may have gone to soundview although i don't recall what happened to him. may just be the same name for two different people--that would be pure coincidence--although stranger things have occurred.
gjg49
Good Afternoon Roger,
I read over at Green Faucet that you purchased some SDS earlier in May. Now that the market is above the 200 moving average would you remove this hedge?
On a side note, Rosenberg just conducted an interview on fast money in which he says this market will likely continue up into late summer and than crater in the fall.
Gray market means no market maker. So I kind of wonder how that works, but I don't really care.
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