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Posts Tagged ‘government bonds’

German Finance Minister calls Fed “Clueless”; G20 Showdown with China; Why Geithner’s “Non-Plan” is Nothing but Hot Air

German Finance Minister calls Fed "Clueless"; G20 Showdown with China; Why Geithner’s "Non-Plan" is Nothing but Hot Air

Courtesy of Mish

Outside the blogosphere and into realm of high ranking government officials, it is rare to hear words like "clueless" to describe the Fed. That such talk is now occurring shows just how upset the rest of the world is at Bernanke’s policies.

Reuters reports US Policy ‘Clueless’: German Finance Minister.

Europe needs to strengthen economic governance and agree on a permanent crisis resolution mechanism, all the more so given current U.S. economic weakness, German Finance Minister Wolfgang Schaeuble said on Friday.

France and Germany should maintain their leadership role in Europe, Schaeuble said, especially in order to harmonise its economic policy and bolster stability given current economic uncertainties.

These are being worsened by reckless policy in part from the the United States, Schaeuble said, sharpening his criticism of the Federal Reserve’s program to buy an additional $600 billion worth of U.S. government bonds. Pumping more money into the economy will not solve the country’s problems, he said, adding that the world needed U.S. leadership that was currently lacking.

"With all due respect, U.S. policy is clueless," Schaeuble said. "(The problem) is not a shortage of liquidity. Late on Thursday, Schaeuble said Germany would take up this point critically with the United States both bilaterally and at next week’s G20 summit of industrialised and emerging nations.

G20 Showdown

The Financial Times reports China tees up G20 showdown with US

China has curtly dismissed a US proposal to address global economic imbalances, setting the stage for a potential showdown at next week’s G20 meeting in Seoul.

Cui Tiankai, a deputy foreign minister and one of China’s lead negotiators at the G20, said on Friday that the US plan for limiting current account surpluses and deficits to 4 per cent of gross domestic product harked back “to the days of planned economies”.

“We believe a discussion about a current account target misses the whole point,” he added, in the first official comment by a senior Chinese official on the subject. “If you look at the global economy, there are many issues that merit more attention – for example, the question of quantitative easing.”

China’s opposition to the proposal, which had made some progress at a G20 finance ministers’ meeting last month, came amid a continuing rumble of protest


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Where the Risk Premium Thinking Leads You

Where the Risk Premium Thinking Leads You

Courtesy of Eric Falkenstein of FALKENBLOG

As they say, somethings are so silly on the highly educated can believe them. John Campbell, an archetype of conventional financial academic thinking, has an interesting yet absurd piece on why the low yields of US treasuries makes sense. He starts off with the standard view, that yields of government bonds are due to three things

  • expected real interest rates
  • expected inflation
  • risk premium

As current interest rates are around 2.5%, and current inflation expectations are around 3%, even with a slight convexity adjustment there’s a negative real expected return here. To guys like Campbell, that means, bonds are some kind of insurance, because the only reason investors would accept this is if they pay off in a very bad state of nature, just as you pay for car insurance. Specifically, everyone is supposedly afraid of a recession that would also bring with it deflation. 

While the CAPM betas of bonds have historically been positive, they have been negative lately. If you believed in the CAPM, that would mean the expected negative return makes sense, it is a negative ‘risk premium’. Of course, the positive beta previously did not explain why bonds cratered from 1960 to 1980, and the CAPM does not work at all within equities, the arena it was designed for. It also does not work in corporate bonds, REITs, options, etc. But looked at in isolation it is a plausible explanation, and hope springs eternal.

I think a better explanation of the current interest rates is that the Federal Reserve has been buying hundreds of billions of dollars in US Treasuries. Considering, they have an infinite supply of capital to do this (they create the money when they write the check), the market is not going to offset this via expectations of future inflation. So, the expectations are there, but US Treasuries are a rigged market, with one huge buyer debasing the world’s most powerful currency because it’s in the standard Keynesian manual for how to treat excess unemployment when inflation is currently low. Once the evidence of this short-sighted policy becomes clear, the inflation toothpaste will be out of the tube, and on to the next bubble-crash. 

That is, the expected return on bonds is negative, because bonds are in a Fed-supported bubble. Just look at gold to see what an


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Market Still Deluding Itself That It Can Escape The Inevitable Dénouement

Market Still Deluding Itself That It Can Escape The Inevitable Dénouement

Courtesy of John Mauldin, Outside the Box 

One of my favorite analysts is Albert Edwards of Societe Generale in London. Acerbic, witty and brilliant. Emphasis on brilliant. The fact that he is a Doppelganger for James Montier (who long time readers are well acquainted with) is a coincidence (or he would say vice versa). I only kind of have permission to forward this note to you, but better to ask forgiveness… So, this week he is our Outside the Box. And a short but good one he is.

High angle view of glasses of red and white wine

I am in Amsterdam and it is late, but deadlines have no time line. Tomorrow more work on the book. It is getting close to the end. Most books are finished when the authors quit in disgust. How many edits can you do? I am close.

I wonder late at night, with maybe a few too many glasses of wine, why I feel like a book is so much more than an e-letter. Really? The last ten years of what I have written are on the archives. Good (ok, sometimes really good) is there. But some are an embarrassment. What was I thinking?

But somehow in my Old World brain, a book is more than a weekly letter. It is somehow more permanent than an “online” letter. Which may be archived forever. The book is “paper” and may be around for a few years. But the online version is here for a long time.

I know that is stupid. Really I do. But what is a 61 year old mind to do? A strange world we live in.

It is really time to hit the send button. More than you know! The conversation tonight has been too deep!

Your trying to figure out the purpose of life analyst,

John Mauldin


Market still deluding itself that it can escape the inevitable dénouement

By Albert Edwards

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…
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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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Helicopter Ben Bernanke Says Everything Is Going To Be Okay

Helicopter Ben Bernanke Says Everything Is Going To Be Okay

Courtesy of Michael Snyder at Economic Collapse 

Don’t worry everybody. Federal Reserve Chairman "Helicopter Ben" Bernanke says that the U.S. economy is going to be just fine, and that if it does slip up somehow the Federal Reserve is ready to rush in to the rescue. That was essentially Bernanke’s message to an annual gathering of central bankers in Jackson Hole, Wyoming on Friday. Bernanke insisted that even though the Federal Reserve has already cut interest rates to historic lows it still has plenty of tools that could be used to stimulate the U.S. economy if necessary.

Well, considering Bernanke’s track record, the "don’t worry, be happy" mantra is just not going to cut it this time. After all, if Bernanke and his team were such intellectual powerhouses the "surprise" financial crisis of 2007 and 2008 would not have caught them with their pants down. The truth is that just before the "greatest financial crisis since the Great Depression" Bernanke was telling everyone that the economy was just fine. So are we going to let him fool us again?

But Bernanke insists that this time is different.  This time the Federal Reserve really has got a handle on things.  During his remarks at Jackson Hole, Bernanke said that the Fed will adopt "unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly."

Unconventional measures?

Could that be a thinly veiled way of saying that Helicopter Ben and his pals will do as much "quantitative easing" as they feel is necessary to keep the economy moving forward?…
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Nassim Taleb Says The Financial System Is Now Riskier Than It Was Before The 2008 Crisis

Nassim Taleb Says The Financial System Is Now Riskier Than It Was Before The 2008 Crisis

Courtesy of Tyler Durden

PERTH, AUSTRALIA - APRIL 15: A Black Swan sits in the water as Nicolas Ivanoff of France competes during the Red Bull Air Race Training day on April 15, 2010 in Perth, Australia. (Photo by Dean Mouhtaropoulos/Getty Images for Red Bull Air Race)

Nassim Taleb is out making waves once again, this time at the Discovery Invest Leadership Summit in Johannesburg today, where he said he was “betting on the collapse of government bonds” and that investors should avoid stocks. To be sure this is not a new position for Nassim, who in February had the same message, when he said that "every single human being" should be short U.S. treasuries. Indeed since then bonds have gone up in a straight line as the bond bubble has grown to record levels, and with the ongoing help of the Fed, is it any wonder. The only question is when will this last bubble also pop.

More from Bloomberg:

“I’m very pessimistic,” he said at the . “By staying in cash or hedging against inflation, you won’t regret it in two years.”

Treasuries have rallied amid speculation the global economic recovery is faltering, driving yields on two-year notes to a record low of 0.4892 percent today. The Federal Reserve yesterday reversed plans to exit from monetary stimulus and decided to keep its bond holdings level to support an economic recovery it described as weaker than anticipated. The Standard & Poor’s 500 Index retreated 16 percent between April 23 and July 2, the biggest slump during the bull market.

The financial system is riskier that it was than before the 2008 crisis that led the U.S. economy to the worst contraction since the Great Depression, Taleb said.

Will the Black Swan author be correct? Perhaps (and given enough time, certainly), although as virtually everyone is expecting a dire outcome in both the public and private sector, courtesy of the untenable balance sheet, the surprise will most certainly have to come from some other place. And with even The Atlantic now posting cover stories on the Iran war spark, it is increasingly less likely that geopolitics will be the issue. Is every possible dire outcome priced in? If so, Taleb should focus his formidable intellect on answering just what the market is missing.


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Another Bank Bailout

Another Bank Bailout

Courtesy of MIKE WHITNEY writing at CounterPunch

Jean-Claude Trichet, President of the European Central Bank (ECB) addresses the media during his monthly news conference at the ECB headquarters in Frankfurt June 10, 2010. The ECB kept interest rates at 1.0 percent as expected on Thursday and predicted an uneven, moderate economic recovery.   REUTERS/Ralph Orlowski (GERMANY - Tags: BUSINESS HEADSHOT)

On Thursday, European Central Bank head Jean-Claude Trichet announced that he would continue the ECB’s low interest rates (1 per cent) and easy lending policies for the foreseeable future. Wall Street rallied on the news, sending shares rocketing up 273 points on the day. Trichet also said that he would continue his controversial bond-purchasing program which has drawn fire from wary German leaders who fear the onset of inflation. The bank chief dodged questions on the program suggesting that he will operate secretively like the Fed, buying up downgraded assets and concealing their original owner. By appointing himself the de facto Fiscal Czar of the European Union, Trichet has stopped the fall of the euro, scattered the short-sellers, and zapped the markets upward.  Not bad for a day’s work.

Up until yesterday, credit conditions in the EU had been steadily deteriorating. Hoarding by banks had intensified while the rates that banks charge each other for short-term loans was on the rise. Lenders were afraid that the $2.4 trillion in loans to countries in the south (Greece, Italy, Spain, Portugal) and East Europe would not be repaid and that that would push more banks into default.  Euribor (the rate at which euro interbank term deposits within the euro zone are offered by one prime bank to another ) had been creeping upwards while overnight deposits at the ECB were setting new records every day.  Jittery banks have parked over $390 billion at the ECB’s  deposit facility since the crisis began. Banks would rather get low interest on their deposits then lend in the money markets where they might not be repaid at all. 

From Bloomberg News:

“Jean-Claude Trichet said the European Central Bank will extend its offerings of unlimited cash and keep buying government bonds for now as it tries to ease tensions in money markets and fight the European debt crisis.

“ ‘It’s appropriate to continue to do what we’ve decided’ on sovereign bonds, ECB President Trichet said at a press conference  in Frankfurt today. ‘We have a money market which is not functioning perfectly.’

Trichet’s ECB is buying debt and pumping unlimited funds into the banking system as part of a European Union strategy to stop the euro region from breaking apart. While Trichet refused to bow to some investors’ demands for more details


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Japan’s New PM Warns Country At “Risk Of Collapse” Under Massive Debt Load

Japan’s New PM Warns Country At "Risk Of Collapse" Under Massive Debt Load

New Japanese leader Naoto Kan speaks to journalists during a news conference at his official residence in Tokyo June 8, 2010. Kan appointed a cabinet on Tuesday aimed at clipping the wings of a scandal-tainted party power broker and tackling the nation's huge public debt, as his ruling party prepares for a looming election. REUTERS/Issei Kato (JAPAN - Tags: POLITICS)

Courtesy of Tyler Durden

A week ago Hungary had the unfortunate mishap of telling the truth when it compared itself to Greece, resulting in a massive selloff of the Forint and leading to fresh lows for the euro. Today, it is Japan which is using the very same strategy in an attempt to devalue its own currency. So far it’s working.

The BBC reports that Naoto Kan has been a little truthier than the G-20 plenary sessions generally allow. We now look for the PM’s reign of truth to be even shorter than that of his thousands of predecessors during the past couple of years: "Naoto Kan, in his first major speech since taking over, said Japan needed a financial restructuring to avert a Greece-style crisis."Our country’s outstanding public debt is huge… our public finances have become the worst of any developed country," he said." Obviously, none of this is news. However, the market certainly does not appreciate when it is told that what it sees day after day in the non-mainstream media is actually the truth and nothing but the truth. What next – Tim Geithner coming out to say that a downgrade of the US is actually long overdue?

More from BBC

After years of borrowing, Japan’s debt is twice its gross domestic product.

"It is difficult to continue our fiscal policies by heavily relying on the issuance of government bonds," said Mr Kan, Japan’s former finance minister.

"Like the confusion in the eurozone triggered by Greece, there is a risk of collapse if we leave the increase of the public debt untouched and then lose the trust of the bond markets," he said.

Yet, just like with the SNB’s CHF intervention, the market did not respond at all to this, at least so far. Do the HFT algos need a realism translator when they are not focusing on ephemeral data such as consumer confidence (the US consumer is confident that after once again cutting spending, they may eventually buy that 5th iPad at some point in the future). Or does nobody even care about any fundamentals anymore? Is the entire market a bubble chamber where one bout of buying or selling is all that’s needed to set off the appropriate algo engines?…
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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!

 
 

Phil's Favorites

Moral Dilemma: Should a Libertarian Who Does Not Need Food Stamps, but Qualifies for Them, Take Them?

Courtesy of Mish.

Here's the moral dilemma of the day:

Suppose you are a staunch Libertarian, doing reasonably well and you don't need food stamps. Yet, under perverse rules, you qualify for them. Should you take them?

Reader Steven faces that exact question. Steven writes ...
Hi Mish

In response to your article 40% of U.S. on Welfare; Obamacare Expands Welfare by 23 Million; More on Welfare Than Full-Time-Employed I confess my own moral dilemma.

I am the beneficiary of trusts left to me by my parents. They are not huge, but they sustain me and my children. I prefer to spend time with my kids rather than pursue regular employment.

Until the beginning of this year, I was purchasing my own health...



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Zero Hedge

The Consequences Of America's Invasion Of Afghanistan: NYC Heroin Deaths Highest In A Decade

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

While back in May Obama promised America's mission in Afghanistan was over, and all US troops would leave the country by the end of 2016, the "unintended" consequences of the US presence in this favored by al-Qaeda country will haunt America for a long time. And especially New York, where according to a new report by the Department of Mental Hygiene, the number of people who died from unintentional heroin overdoses in New York City last year was the highest in over a decade.

As WaPo reports, in New York, "where the overall rate of drug over...



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Chart School

Getting Technical: Weekend Update

Courtesy of Doug Short.

Here's the latest weekend update from Serge Perreault, a Chartered Professional Accountant and market technician located near Montreal, Canada. Serge has been following the U.S. market in a series of weekly charts. Here is his update on the S&P 500.

This week, the S&P 500 continued its ascension, on improving but still near-resistance momentum and on below-average volume. The index is now 193% above the bottom of 2009 and 28% above the top of 2007.

Click for a sharper image

Note: For newcomers to technical analysis, ...



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Option Review

Puts Active On Buffalo Wild Wings

Buffalo Wild Wings Inc. (Ticker: BWLD) shares are in positive territory in early-afternoon trading on Thursday, reversing earlier losses to stand up 0.50% on the session at $148.50 as of 12:15 pm ET. Options volume on the restaurant chain is running approximately three times the daily average level due to heavy put activity in the October expiry contracts. It looks like one or more traders are buying the Oct 140/145 put spread at a net premium of roughly $1.45 per contract. As of the time of this writing, the spread has traded approximately 3,000 times against very little open interest at either striking price. The put spread may be a hedge to protect a long stock position against a roughly 6% pullback in the price of the underlying through October expiration, or an outright bearish play anticipating a dip in BWLD shares in the next couple of months. The spread makes money at expiration if shares in BWLD decline 3.3% from the current price of $148.50 to breach the breakeven point...



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All About Trends

Mid-Day Update

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

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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Sabrient

Six Companies Push Tax Rules Most

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

Courtesy of Sabrient Systems and Gradient Analytics

Gradient Senior Analyst Nicholas Yee reports on six companies that are using a variety of techniques to shift pretax profits to lower-tax areas. Featured in this USA Today, article, the companies include CELG, ALTR, VMW, NVDA, LRCX, and SNPS.

Six Companies Push Tax Rules Most

Excerpt:

Nobody likes to pay taxes. But some companies are taking cutting their tax bil...



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Digital Currencies

Disgraced Mt Gox CEO Goes For Second Try With Web-Hosting Service (And No, Bitcoin Not Accepted)

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Mt Gox may be long gone in the annals of bankruptcy, but its founder refuses to go gentle into that insolvent night. And, as CoinDesk reports, the disgraced former CEO of the one-time premier bitcoin trading platform has decided to give it a second try by launching new web hosting service called Forever.net and is registered under both Karpeles’ name and that of Tibanne, the parent company of Mt Gox.

From the company profile:

“TIBANNE Co.Ltd. ...



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OpTrader

Swing trading portfolio - week of August 25th, 2014

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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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

The latest issue of our weekly newsletter is available now. Click on Stock World Weekly and sign in with your user name and password. (Or take a free trial!)

#120692880 / gettyimages.com

 

...

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Market Shadows

Helen Davis Chaitman Reviews In Bed with Wall Street.

Author Helen Davis Chaitman is a nationally recognized litigator with a diverse trial practice in the areas of lender liability, bankruptcy, bank fraud, RICO, professional malpractice, trusts and estates, and white collar defense. In 1995, Ms. Chaitman was named one of the nation's top ten litigators by the National Law Journal for a jury verdict she obtained in an accountants' malpractice case. Ms. Chaitman is the author of The Law of Lender Liability (Warren, Gorham & Lamont 1990)... Since early 2009, Ms. Chaitman has been an outspoken advocate for investors in Bernard L. Madoff Investment Securities LLC (more here).

Helen Davis Chaitman Reviews In Bed with Wall Street. 

By Helen Davis Chaitman   

I confess: Larry D...



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Pharmboy

Biotechs & Bubbles

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

Well PSW Subscribers....I am still here, barely.  From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.

First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices.  Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment.  Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer.  For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...



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Promotions

See Live Demo Of This Google-Like Trade Algorithm

I just wanted to be sure you saw this.  There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.

If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.

Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.

Follow this link to register for their training webinar where they’ll demonstrate the tested and proven Algorithm powered by the same technological principles that have made GOOGLE the #1 search engine on the planet!

And get this…had you done nothing b...



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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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