Posts Tagged ‘bond yields’

Are Stocks Overvalued By $4+ Trillion? Quantifying The Fed’s Impact On The Stock Market

Are Stocks Overvalued By $4+ Trillion? Quantifying The Fed’s Impact On The Stock Market

Courtesy of Tyler Durden, Zero Hedge 

A few months ago we penned an article titled: "Bond Yields Imply The Fair Value Of The S&P Is 750" and this was when the 10 Year was still above 3.00%. It is now around 40 bps tighter, meaning the fair value of stocks is even lower based on the historical 75% regression pattern we indicated back in June. Today, David Rosenberg also chimes in on this ridiculous divergence between the S&P and bonds, and in graphic form shows that should the gap ever close, it would lead the stock market to its fair value, which ironically, is just around the March 2009 lows of 666.

Folks — something has to give … yields on the 2-year T-note (thin line, right hand side on chart below) has a 75% POSITIVE correlation with the S&P 500 and just hit a cycle low. Either it’s a short or the equity market is … take your pick.

As a reminder, historically bonds are right… about 100% of the time.

And with the S&P’s market cap at $10.5 trillion, meaning each S&P point is equivalent to about $9 billion dollars, the impact of the Fed’s intervention on stocks is roughly $4.4 trillion. Alterantively, one can argue that stocks are right, and bonds are wrong. Since the bond market is double the size of its smaller stock cousin, it would means that the Fed’s endless interventions have mispriced just under $9 trillion worth of fixed income assets.

And people want to play in a market that is as ridiculously out of sync with reality as either of these?

Good luck.


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‘I Love the Delusion of the Markets at this Point in the Cycle’

‘I Love the Delusion of the Markets at this Point in the Cycle’

Courtesy of Michael Panzner at Financial Armageddon 

Since I started publishing Financial Armageddon in late-2006, I’ve often railed against the incompetence and tomfoolery of highly-paid Wall Street "strategists" (note the double quotes). Many of these so-called experts are clueless data-regurgitators or ivory tower economists with above average communications skills. Indeed, it seems to me that most of the "stars" of the forecasting game are simply being rewarded for having the gift of gab, rather than their ability to look past the trees and size up the layout of the forest.

But as with most generalizations, there are exceptions. Surprisingly — yes, I am cynical — a very small number of those who know what they are talking about, have something intelligent to say, and know how to translate their insights into clear and interesting prose have been recognized as such. I am referring in particular to Albert Edwards, the number-one ranked global strategist for I-don’t-know-how-many-years running, and his sidekick Dylan Grice, who placed second overall in the 2010 Thomson Reuters Extel Survey, both of whom are members of the strategy team at Societe Generale.

In his most recent Global Strategy Weekly, Mr. Edwards touches upon two topics near-and-dear to my heart: the real state of the economy and the utter cluelessness of most equity investors [italics mind]:

The current situation reminds me of mid 2007. Investors then were content to stick their heads into very deep sand and ignore the fact that The Great Unwind had clearly begun. But in August and September 2007, even though the wheels were clearly falling off the global economy, the S&P still managed to rally 15%! The recent reaction to data suggests the market is in a similar deluded state of mind. Yet again, equity investors refuse to accept they are now locked in a Vulcan death grip and are about to fall unconscious.

The notion that the equity market predicts anything has always struck me as ludicrous. In the


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Albert Edwards Sees Stocks Under March Lows As Bond Yield Go Below 2%

Albert Edwards Sees Stocks Under March Lows As Bond Yield Go Below 2%

Courtesy of Tyler Durden

Just in case there was any confusion which way SocGen’s Albert Edwards may be leaning after the recent however many percent rally in the AUDJPY, sometimes known affectionately as stocks, it is hereby resolved: "My views on the outlook could not be clearer. They may be wrong, but at least they are clear. We still call for sub-2% 10y bond yields and equities below March 2009 lows." In other words, according to AE the market is well over 50% overvalued.

In a surprisingly pithy note, the strategist reverts back to his favorite formulation of the economic New Normal, which he calls the Ice Age, and specifically the current phase which he compares to the period where the Nikkei used to enjoy 40-50% rallies on no news, even as the general market continued its long term collapse over a span of 20 years:

We are at the most dangerous stage in the Ice Age – the ‘post-bubble cycle’. For although it is clear that leading indicators have turned downwards, the choir of sell-side sirens is singing its song of reassurance. The lesson from Japan was that once the cyclical rally is over, any downturn in the leading indicators should find you stuffing beeswax in your ears to block out that lilting melody so as to avoid the jagged rocks of recession.

In addition to remarking on the recession certainty now implied by the ECRI index (which we are confident will post an uptick this Friday just to plant some seeds of doubt in all those who look to forward looking instead of lagging indicators, A.E. notes the change in analyst optimism, which is also signifying a recessionary advent:

 

Although the closely watched ECRI weekly leading indicator (WLI) is now in the ?recession? zone, other leading indicators such as the OECD and Conference Board are weakening at a far more moderate, reassuring pace. Yet one of our favourites and most over-looked of leading indicators is the change in analyst optimism. Like the ECRI WLI this too is in recession territory and suggests the OECD and Conference Board measures will also be soon! Appealing as the siren song is, we should all know full well that the sell-side will only call the recession long after it has begun and


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Troubling Hints From Fed and Banking System Balance Sheets

Courtesy of Lee Adler of Wall Street Examiner

The Fed’s balance sheet shrank slightly last week as there was a net paydown of MBS [mortgage backed securities]. That will be replaced when the Fed settles its MBS purchases at mid month as it does each month. The Fed has increased its replacement purchases over the past couple of months in order to get the balance sheet back to the unchanged level. Paydowns rose when rates fell earlier in the year and more people refinanced their mortgages. That wave has now ended and paydowns are receding. That will lead to lower Fed replacement purchases in the months ahead, which in turn will mean less support for stock and bond prices.

Bank loans continue to soar as banks lend more, and cash created by the BoJ and ECB flows into the US markets and US banks. The credit bubble continues...



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ValueWalk

Payday Lender Lobbying And Campaign Spending Top $15 Million For 2014 Election Cycle [Report]

View original post here.

High cost “quick-fix” consumer lenders reported spending more than $15 million to influence Washington decision-makers during the last election cycle, according to an updated report (view or download full report here) released today by Americans for Financial Reform.

The Online Lenders Alliance (OLA) and Community Financial Services Association (CFSA) led the way, with combined contributions of $3.8 million. Top spenders also included some of the major members of these trade associations – the large national chains that dominate the high-cost consumer lending world: ACE Ca...



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Zero Hedge

Merkel Just Turned The Screws On Greece: There Is Money, But The Deal Is Much Harsher Now (And No Debt Haircut)

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Another day came and went with no breakthrough in negotiations between Athens and Brussels as new Greek FinMin Euclid Tsakalotos reportedly showed up to Tuesday's Eurogroup with nothing to discuss. 

With the ECB tightening the screws on Greek banks and the German finance ministry as well as German lawmakers tightening the screws on Angela Merkel, the Chancellor is drawing a hard line toward the Greeks in the face of calls for debt writedowns from the IMF, Greek PM Alexis Tsipras and the Greek people. 

  • MERKEL SAYS IF GREEK REFORM PROPOSALS ARE SATISFACTORY AND PRIOR  ACTIONS TAKEN, SHORT-TERM FINANCE CAN BE PROVIDED: RTRS
  • MER...


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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Trade Deficit increased in May to $41.9 Billion (Calculated Risk)

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $41.9 billion in May, up $1.2 billion from $40.7 billion in April, revised. May exports were $188.6 billion, $1.5 billion less than April exports. May imports were $230.5 billion, $0.3 billion less than April imports.

'The Great Fall of China' is hitting other markets (Business Insider)

China's ...



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All About Trends

Mid-Day Update

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Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Kimble Charting Solutions

Interest rates attempting breakdown, after historic rally!

Courtesy of Chris Kimble.

CLICK ON CHART TO ENLARGE

From the first of February to the end of June, the yield on the 10-year note shot up nearly 40%. This sharp rally hurt bond funds big time, as TLT suffered one of worst short-term declines in its history, falling 13% in a 16-weeks. (See post here and chart below) 

The strong rally in yields took them to the 2.5% level, where they hit dual resistance at (1) above. This dual resistance was its 2-year falling channel and the 61% level. Now yields could be breaking down from its historic yield ra...



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Chart School

RTT browsing latest..

Courtesy of Read the Ticker.

Please review a collection of WWW browsing results.Date Found: Friday, 05 June 2015, 03:53:56 PM

Click for popup. Clear your browser cache if image is not showing. Comment: FAIR QUESTION: is the Fed simply rising rates just so it badly crashes the economy and has the cover to launch QE4, the same way Russian sanctions crippled Germany's economy and led to the ECB's very first episode of bond monetization?

Date Found: Friday, 05 June 2015, 08:54:03 PM

Click for popup. Clear your browser cache if image is not showing. Comment: Zerohedge : This is the simplest way to describe Keynesianism: A slow steady rise up, with quick steps down towards where you came from.

Date Found: Saturday, 06 June 2015, 02:12:32 AM...

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Sabrient

Sector Detector: Bulls prepare for a new buying opportunity, courtesy of Greece

Reminder: Sabrient is available to chat with Members, comments are found below each post.

Courtesy of Sabrient Systems and Gradient Analytics

Of course, all eyes have been on Greece in an ongoing saga that, although critical to the Greeks, is mostly just an annoying distraction for global investors -- partly because it has been going on for so many years, with the proverbial can of inevitability continually being kicked down the road, and partly because there can be no winners in this intractable situation. Predictably, the electorate chose to follow the advice of the communists that they elected and reject the rigid bailout offer, calling the bluff of the IMF, ECB, and Eurozone and betting they will do whatever it takes to avoid losing one of its members. These are uncharted waters, and with the resultant s...



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OpTrader

Swing trading portfolio - week of July 6th, 2015

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Digital Currencies

Bitcoin Surges After Initial Forecasts Show "No" Vote Ahead

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

If the early bitcoin markets are an indication of what will happen once New Zealand opens for illiquid FX trade, it will be a risk off kinda day.

And that doesn't even take into account the pandemonium that will be unleashed in China in a few hours after the PBOC just went all-in to halt the crashing stock market. What if it fails to get a green close before tomorrow's US open?

Source: ...



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Pharmboy

Baxter's Spinoff

Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.

Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).

The Baxalta Spinoff

By Ilene with Trevor of Lowenthal Capital Partners and Paul Price

In its recent filing with the SEC, Baxter provides:

“This information statement is being ...



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Mapping The Market

An update on oil proxies

Courtesy of Jean-Luc Saillard

Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself. 

Since...



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Promotions

Watch the Phil Davis Special on Money Talk on BNN TV!

Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene

 

The replay is now available on BNN's website. For the three part series, click on the links below. 

Part 1 is here (discussing the macro outlook for the markets) Part 2 is here. (discussing our main trading strategies) Part 3 is here. (reviewing our pick of th...

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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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