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Daily Archives: 25 November, 2012, 08:20, CEST+1

Fixed Income Overview and Strategies – Chase for Yield is On

Published 25 November, 2012, 08:20, CEST+1 | By the trader

Guest post by Peter Tchir.

The Year End Yield Chase

Closed end fixed income funds continued their bounce, high yield ETF’s had inflows, and much of what we discussed last week came true.

The move the prior week was rational.  We saw steep declines in closed end funds on a combination of big premiums, leveraged assets, and dividend tax confusion.  This helped push all credit markets lower.  Credit moved not just with the other “risk off” trades but with fear and confusion that retail in particular was having a mass exodus from fixed income.

That wasn’t true and isn’t likely to be true anytime soon.

I am the most bullish I have been.  I think we will see continued strength in credit into year end at this point.  I am making a key assumption here that the fiscal cliff will be dealt with in a way that benefits the markets.  I expect a deal that has minimal impact in the next 6 months to a year.  At the Ben Bernanke luncheon this week, it seemed clear to me that is what he is telling congress.  So congress is being told not to raise taxes and not to cut spending in the near term but by the Chairman of the Federal Reserve.  That seems to be a policy that congress can get on board with, as can kicking seems to be their specialty.

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FX Technical Outlook: Yen and Dollar Weakness Set to Continue

Published 25 November, 2012, 11:50, CEST+1 | By the trader

FX Technicals by Marc Chandler of Marc to Market,

Last week, we recognized that the US dollar was overstretched and anticipated some consolidation/correction. Yet the pace and magnitude of the move was surprising, especially in light of the series of disappointing developments in Europe, which include the initial failure to resolve Greece’s funding problems and the EU’s next 7-year budget.  Nor was the economic data inspiring, as the main report of the week, the Nov flash PMI reading, suggests the euro area economy continues to contract here in Q4.
In contrast, the US reported stronger than expect existing home sales and housing starts, as the painfully slow recovery in the housing market continues.  Weekly initial jobless claims slipped back as the impact of the east coast storm fades.  The newly introduced Markit PMI reading was above consensus forecasts.  The University of Michigan’s final consumer confidence measure for November was a bit softer than the preliminary report, but still is at 4 1/2 year highs.
Admittedly, the key issue in the US is not how the economy is performing now, but the looming fiscal cliff. The noises and signals emerging from Washington seemed to be a source of some confidence that the worst of it will be averted, though we continue to suspect that brinkmanship tactics will make for only a last minute deal (if not a slightly later one)  Yet the optimism was frequently cited for the S&P gains last week.
Recall that the S&P 500 rallied about 16.5% from early June through mid-September.  We turned cautious here (Sept 22), anticipating a decline to at least 1400.   The S&P overshot this, but staged a reversal on Nov 16 and saw impressive follow through last week.  In fact, the S&P’s 4.1% advance last week, was the best since June and all the main industry groups, save utilities, participated.
With the pre-weekend advance, the S&P 500 has retraced 50% of its two month slide.  The next retracement level is near 1424 and the month’s high comes in near 1434. These are the main two technical barriers ahead of a return to the year’s high near 1475.  We note that the 5-day moving average of the S&P 500 is poised to cross above the 20-day average early next week.  In addition, what could be a head and shoulders bottom projects toward 1435.  The correlations between the foreign currencies and the S&P 500 has declined over the past few months, but has begun to increase again recently.
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Japan’s Adult Diaper Boom

Published 25 November, 2012, 11:00, CEST+1 | By the trader

Guest post by Azizonomics.

Japan’s population has gotten so old that diaper manufacturers are selling more adult diapers for incontinent seniors than they are baby diapers. According to Bloomberg:

Unicharm Corp’s sales of adult diapers in Japan exceeded those for babies for the first time last year.

This is because Japan’s population is getting older and older:

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