Posts Tagged ‘Bond investors’

YIELD CURVE SAYS: SLOW GROWTH, BUT NO RECESSION

YIELD CURVE SAYS: SLOW GROWTH, BUT NO RECESSION

Courtesy of The Pragmatic Capitalist 

Much has been made about the recent action in the bond market.  Yields have fallen to unheard of levels.  The inflationistas and curve steepener traders are bewildered.  It’s clear that bond investors are expecting very low inflation in the coming decade, but some fear it is portending far worse.  Famed bond guru Bill Gross is worried about the action in the bond markets – so much so that he says the current environment is pricing in a depression.   The Cleveland Fed recently released a note on the predictive nature of the yield curve.  Their conclusions – a slowdown is on the horizon, but no double dip will follow:

“Since last month, the three-month rate has dropped to 0.09 percent (for the week ending June 18) from May’s 0.17, and this also comes in below April’s 0.16 percent. The ten-year rate dropped to 3.26 percent from May’s 3.33 percent, also down from April’s 3.85 percent. The slope increased a mere 1 basis point to 317 basis points, up from May’s 316 basis points, but still below April’s 369 basis points.”

fed1 YIELD CURVE SAYS: SLOW GROWTH, BUT NO RECESSION

“Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.00 percent rate over the next year, just up from May’s prediction of 0.98 percent. Although the time horizons do not match exactly, this comes in on the more pessimistic side of other forecasts, although, like them, it does show moderate growth for the year.”

fed2 YIELD CURVE SAYS: SLOW GROWTH, BUT NO RECESSION

“the expected chance of the economy being in a recession next June rises to 12.4 percent, up from May’s 9.9 percent and April’s 7.1 percent, despite the slight rise in the spread. Recent data has shifted the predicted value upward, though it still remains low.”

fed3 YIELD CURVE SAYS: SLOW GROWTH, BUT NO RECESSION

So, very slow growth, but no double dip.  Of course, this is all assuming the recession actually ended which I think is absolute nonsense.  This is and remains a consumer driven balance sheet recession.   The reason policymakers have failed to solve the problems on Main Street is because they have failed to properly diagnose this as a problem rooted on Main Street.

As for the predictive nature of the yield – I think we have to seriously wonder if this time isn’t different.  Monetary policy has proven to…
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BONDS SAY DEFLATION, STOCKS SAY REFLATION. WHO IS RIGHT?

BONDS SAY DEFLATION, STOCKS SAY REFLATION. WHO IS RIGHT?

inflation, deflationCourtesy of The Pragmatic Capitalist

Stocks have surged 11% since June 10th.  At the same time, the 10 year treasury yield has declined almost 70 basis points to close at 3.18% yesterday.   What is curious here is that the stock market is telling a very different story from the bond market.  Bond investors (who tend to have a longer time horizon) are forecasting a long battle with deflation.  Equity investors (who tend not to think much farther than one quarter into the future), on the other hand, are putting their money on the line in the hopes that the reflation trade is alive and well.

Unfortunately for equity investors, they have a poor record of forecasting the future when compared to bond investors.   There have been 4 famous cases of such bond and stock divergences in the last 20 years.  The most famous is the summer of 1987.  We all know what occurred then.  The other three cases were fall ‘94, summer ‘98 and winter 2000.   All three preceded declines in the market.  Of all 4 instances, three of them preceded 15% declines in the S&P 500.

The real crux of the issue here is not terribly complex.  In order for corporations to tack on to the $80 in operating earnings that the equity market is currently pricing in for 2010, they will need pricing power.  The cost cutting and resulting margin expansion we are seeing is great in the near-term, but we’re unlikely to see pricing power and hence real revenue expansion without at least some inflation.  The bond market, however, is pricing in little to no inflation.  The bond market’s message is clear – we are in a deflationary world.  That doesn’t bode well for the prospect of corporate earnings and that likely means stocks are getting a bit frothy here.  Investors would be wise to take a step back and reconsider the risk/reward of owning equities once the euphoria surrounding Q3 earnings wears off….

Related -

John Paulson’s Huge Reflation Bet

Are 20 Years of Deflation Ahead of Us?

Photo: Goddesses of Inflation and Deflation, courtesy of  Elaine Supkis.

 


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Murderers' Row

 

Murderers’ Row

Courtesy of 

Blessed to be surrounded by colleagues who make me think, teach me new stuff everyday and write incredible, fact-filled investment stuff on a regular basis that just absolutely kills. Three people on my Murderers’ Row did extraordinary stuff just now, and you’re going to be a smarter, more informed investor if you read these…

Ben Carlson wrote about edges, and how quickly competition competes them away once they come apparent. Did you know that in the 1950’s, individual investors owned 95% of...



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Zero Hedge

Citi Ready To Replace "Tens Of Thousands" Of Call-Center Workers With Robots

Courtesy of ZeroHedge. View original post here.

Citigroup is apparently preparing to follow through on its promise it shed as many as 20,000 operations and technology positions, according to an interview with CEO Mike Corbat that was published Tuesday in the Financial Times.

...



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ValueWalk

Current Quarterly Earnings Forecasts Accentuate The Negative

By Jacob Wolinsky. Originally published at ValueWalk.

In revising their forecasts of companies’ current quarterly earnings, analysts accentuate the negative, new research finds

3844328 / PixabayWidely available earnings forecasts not as informative as many think

It may be the most persistent criticism leveled against stock analysts – excessive optimism, what is widely perceived to be a tendency to be more upbeat about the companies they cover than the facts...



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Kimble Charting Solutions

Doc Copper About To Hurdle Important Breakout Level?

Courtesy of Chris Kimble.

Doc Copper often times sends important messages, to the global economy, reflecting growth or lack thereof. An important price test is currently in play for Ole Doc Copper!

The long-term trend for Copper remains up, as it has created a series of higher lows for the past 18-years along line (1). Over the past few months, Copper could be creating a double bottom just above this long-term rising support line at (2).

The small rally of late has Doc Copper testing the top of its 6-month trading range at (3).

Can ole Doc Copper hurdle this important breakout leve...



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Insider Scoop

The Street's Early Reaction To Walmart's Q4 Beat

Courtesy of Benzinga.

Related WMT Mid-Morning Market Update: Markets Edge Higher; Walmart Tops Q4 Expectations Walmart Brings Bright Spot T...

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Digital Currencies

Cryptos Are Surging: Bitcoin, Ethereum Hit One-Month Highs As Institutions Dip Toes

Courtesy of Zero Hedge

Cryptocurrencies are surging while the US equity markets take the day off. Ethereum is up over 18% from Friday's 'close' and the rest of the crypto space is a sea of green. While no immediate catalyst (headline or technical level) is clear, increasing chatter over institutional investors dipping their toes in the space have prompted an extension of the positive trend.

A sea of green...

Source: Coin360

Ethereum is leading the charge follow...



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Chart School

Weekly Market Recap Feb 17, 2019

Courtesy of Blain.

The “V” shape bounce continues in unrelenting fashion as bulls are stampeding bears in 2019!  All due to a little “patience” from the Federal Reserve.  It is really quite breathtaking but we have seen it repeatedly the past decade as the Federal Reserve pours gas on the market.  Hopes for a deal with China also spurred the action upward.  Rallies (both with gap ups) on Tuesday and Friday provided the juice this week.   The S&P 500 is back over its 200 day moving average after being below for 46 days – it’s longest period of time below that level since March 2016.

Mat Klody, chief investment officer at Keebeck Wealth Management, told MarketWatch that the major benchmarks’ steady march higher since the beginning of the year is being driven &#x...



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Biotech

Cancer: new DNA sequencing technique analyses tumours cell by cell to fight disease

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

 

Cancer: new DNA sequencing technique analyses tumours cell by cell to fight disease

Illustration of acute lymphoblastic leukaemia, showing lymphoblasts in blood. Kateryna Kon/Shutterstock

Courtesy of Alba Rodriguez-Meira, University of Oxford and Adam Mead, University of Oxford

...

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Members' Corner

Why Trump Can't Learn

 

Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...



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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

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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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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About Phil:

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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