Fixed Income Overview and Strategies – Chase for Yield is On
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.
Gold Cycle Analysis: Mining Shares Weak But Gold & Silver Bullion Strong
Guest post via Gold Silver Worlds.
A remarkable event has taken place in the gold and silver markets in the past two days. It didn’t go unnoticed to anyone following these markets. The gold and silver mining shares have been sold off hard. The drop was out of proportion and did not reflect the actions in the stock market nor in the metals. The fact that the miners have been leading bullion up since August, raises the question if this marks a structural shift in the direction of the shares and the metals, or if both assets will start moving separately in the coming weeks and months.
This article explains the answers on these questions based on the gold cycle analysis. It is an excerpt from The Financial Tap, a service specialized in cycle research (for more detailed insights, readers are invited to consider a free 15-day trial). In a nuthsell: the author is worried about the mining shares but is quite bullish on the metals.
Precious Metals Rally
Guest post by Jessie.
“You can fool some of the people all of the time, and all of the people some of the time, but you can’t fool all of the people all of the time.”
Abraham Lincoln
I have closed out the ‘short stocks’ portion of my stocks-bullion hedged trade today. There may be more downside ahead for equities, but it looks to be a bit overdone, at least in the short term. I also took some of the bullion positions down as I had taken it to a maximum on that big decline shortly before the US Presidential election. Now it is at a more comfortable ‘running’ level. As always, this is with regard to my ‘trading positions’ as I do not touch or even look at my long term holdings.
Gold has moved very nicely through the resistance around 1720 and ‘stuck a close’ for today over 1730. We *might* see a test of that resistance at 1720, which is now support below the current price. But if this is a handle in a cup-and-handle formation, then that does not matter, and it is playing out very well. However a clear break above 1800 is key.
The central banks are printing money to rescue the Western banking system. There is an enormous macro event taking place in the global currency as the US dollar reserve currency agreement, in place since World War II, has been changing for at least the past ten or more years, first slowly but soon with increasing speed.
Very few people understand what is happening, even amongst economists. Those who stand against this sort of change will find themselves swimming against a rather powerful secular tide. There is nothing cyclical about this financial crisis or the economic ills that have accompanied it in the conventional economic sense, unless one wishes to start looking at very long, generational cycles of human wickedness and folly.
EuroCurrency Volatility Index (EVZ) at Lowest Level Since March 2008, Diverges from VIX
Guest post by Vix and more.
Since its launch in August 2008, the CBOE EuroCurrency Volatility Index (ticker EVZ, sometimes known simply as the “euro VIX”), which is based on the FXE ETF, has toiled in relative obscurity compared to some of the more famous volatility indices.
Given all the fears about the European sovereign debt crisis over the past few years, I find the lack of interest in EVZ to be surprising. After all, in thinking about the euro zone one of the most basic questions has been whether or not the euro will survive. Further, outside of the U.S. at least, the future of the euro zone is still considered to be the biggest risk to the stock market.
With all this in mind, I was looking at EVZ data this evening and discovered that today marks five years since the beginning of the historical EVZ data provided by the CBOE (reconstructed data fills the gap from November 2007 to the August 2008 launch.)
The chart below shows the history of closes in EVZ (blue line), as well as comparative closing prices for the VIX (red line.) I have annotated the chart to highlight two pieces of information:
Renter Nation
Guest post by Peter Tchir.
Buy and hold is dead. We “rent” stocks. We “rent” bonds. We “rent” commodities, and now we “rent” homes.
There are the obvious, negative reasons that homeownership is not increasing. Not enough jobs, loan availability is still difficult, a separation between where you can afford to live and where you are willing to live, etc.
Some of the other reasons, while possibly rooted in negativity are just different.
People have realized that buying and selling homes costs money. Not just the brokerage fees (how they get 6% is beyond me) but all the little work that has to be done to mold the home into what you want. This isn’t new it is just something we seemed to forget during the heyday of the housing bubble.
7%, Credit Hedge Funds & Goal Seeked Returns
Peter Tchir has been rather spot on regarding the markets lately. Here are some weekend thoughts worth reviewing.
You can read about Europe from a lot of other sources this weekend. I maintain that when a Grexit became a real possibility, they finally looked at what it would mean and became scared of the risk. Since then there has been a change of attitude. I saw it in the Spanish bailout, and I continue to see it. You can debate all day long about what Merkel says, or what the facilities can or can’t do, but if the EU has changed their approach, and has the will, they can find a way to give this one heck of a kick down the road.
High Yield is positive for the year no matter which day you bought it
Why would retail investors switch to equities when they have found a new and underinvested asset class that yields 7%? I’ve pulled up HYG here to show that there is now not a single purchase that would have a negative total return. Even if you top-ticked the market in February, the coupon income has saved you. This is true for the mutual funds I looked at as well.
‘Don’t Panic, Stocks are Safe!’
Just a reminder. Economist Professor Irving Fischer explains that the stock market crashed due to high expectations- not high stock prices. Too many speculators were playing the stocks with borrowed money, resulting in a run on the banks. 80 years later, the banks are speculating with borrowed money and investors are running away from them.
Historic video below.
Buy gold, short the Euro and be prepared for the big equities sell off
Biderman- Buy Gold, short the Euro as it will reach par with the USD. The top in equities is in, but the big sell off is not happening until later in April. Full video below.
Stocks vs Economy
On the divergence between stocks and the economy. We are up for a bumpy stock ride in the coming months. By Edward Harrison of Credit Writedowns.
Global Macro Monitor had good charts of the jobs report over the Easter weekend. I didn’t report on them because I was away for the weekend. But the first chart’s visual is similar to the one I showed you two weeks ago on job creation. As I said then, the chart looks good for Obama. If the pattern holds, then the chart will be a good one come the general elections in the fall because it will line up better with what people are feeling by that time. I don’t think it will but let’s see what happens. (Full reading here).
Prices Should Fall This Tax Season
Biderman’s comments.
US taxpayers in April 2011 sent $140 billion to the US Treasury. While I have no idea how much taxes will be paid this April, I am pretty sure that billions of dollars in stocks still will be sold to pay taxes. That should keep pressure on stock prices the rest of this week, everything else being equal.
The biggest story today is that the financial markets were shocked, shocked that Friday’s jobs number was disappointing. After all, the Bureau of Labor Statistic had been guessing that an average of 250,000 new jobs were created each month, after seasonal adjustments, from December to February. Over that same time frame there appeared to be an improving trend in weekly new unemployment claims.
What I am most shocked about is that almost everyone on Wall Street seems to believe that the Bureau of Labor Statistics initial estimate of new jobs and unemployment claims are as accurate as if they were generated by a ticket taker counting admissions. The Wall Street Journal, the New York Times, the talking heads on CNBC, other than Rick Santuli, all did not voice any reservations what so ever about the quality of the BLS number. Not one report stated that the initial BLS job number often gets revised dramatically up and down before getting finalized years later when the income tax returns are totaled up. (Full reading here).
Video below.
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