Posts Tagged ‘credit markets’

Has the Fed Painted Itself Into a Corner?

Has the Fed Painted Itself Into a Corner?

Courtesy of Yves Smith

[unclescrooge.jpg]A couple of articles in the Wall Street Journal, reporting on a conference at the Boston Fed, indicates that some people at the Fed may recognize that the central bank has boxed itself in more than a tad.

The first is on the question of whether the Fed is in a liquidity trap. A lot of people, based on the experience of Japan, argued that resolving and restructuring bad loans was a necessary to avoid a protracted economic malaise after a severe financial crisis. But the Fed has consistently clung to the myth that the financial meltdown of 2007-2008 was a liquidity, not a solvency crisis. So rather than throw its weight behind real financial reform and cleaning up bank balance sheets (which would require admitting the obvious, that its policies prior to the crisis were badly flawed), it instead has treated liquidity as the solution to any and every problem.

Some commentators were concerned when the Fed lowered policy rates below 2%, but there we so many other experiments implemented during the acute phases that this particular shift has been pretty much overlooked. But overly low rates leaves the Fed nowhere to go if demand continues to be slack, as it is now.

Note that the remarks by Chicago Fed president John Evans still hew to conventional forms: the Fed needs to create inflation expectations, and needs to be prepared to overshoot.

This seems to ignore some pretty basic considerations. First, the US is suffering from a great deal of unemployment and excess productive capacity. The idea that inflation fears are going to lead to a resumption of spending (ie anticipatory spending because the value of money will fall in the future) isn’t terribly convincing. Labor didn’t have much bargaining power before the crisis, and it has much less now. Some might content the Fed is already doing a more than adequate job of feeding commodities inflation (although record wheat prices are driven by largely by fundamentals).

From the Wall Street Journal, “Fed’s Evans: U.S. in ‘Bona Fide Liquidity Trap’”:

The Federal Reserve may have to let inflation overshoot levels consistent with price stability as part of a broader attempt to help stimulate the economy, a U.S. central bank official said Saturday.

“The U.S. economy is best described as being in a bona


continue reading


Tags: , , , , , , , , , , , ,




THE IMPORTANCE OF SHORT-TERM DEBT MARKETS

THE IMPORTANCE OF SHORT-TERM DEBT MARKETS

Courtesy of The Pragmatic Capitalist 

Excellent analysis here from Peter Eisenhardt at ICMA.  Mr. Eisenhardt describes why the short-term credit markets are so important and why the recent seizure in the credit markets is an important indicator to keep an eye on:

ICMA THE IMPORTANCE OF SHORT TERM DEBT MARKETS

Source: Reuters Insider


Tags: , ,




AN INVERTED DEATH CROSS IN INVESTMENT GRADE CREDIT

AN INVERTED DEATH CROSS IN INVESTMENT GRADE CREDIT

Skull

Courtesy of The Pragmatic Capitalist 

As we’ve previously described the primary differentiating factor between this sell-off and every sell-off since March 2009 has been the action in the credit markets.  For the first time in over year we are seeing substantial deterioration across credit markets.  This has been notable in IG credit.  Spreads have started blowing out again as the sovereign debt fears raise memories of Lehman Brothers.

The action in yesterday’s market was notable due to the strong technical movement we saw in spreads.  The 50 day moving average moving upward crossed the 200 day moving average moving downward.  In a typical market this would be known as a “golden cross”, but as widening spreads are a negative indicator this is actually an inverse “death cross”.  It sounds very phony as most technical analysis chart patterns do, but this is one that is worth noting.  The crossing of the moving averages is a very rare event and generally indicates the beginning of a very strong directional trend.  We have noted similar patterns in several markets over the last few years including the golden cross in the S&P 500 in June 2009 at S&P 900 and the death cross in Chinese equities just prior to their  recent 20% decline.

From a purely simplistic technical perspective IG credit’s death cross is forecasting more difficult days ahead in the credit markets and that is certain to coincide with more difficulty in the equity markets.  Investors would be wise to take note.

IG AN INVERTED DEATH CROSS IN INVESTMENT GRADE CREDIT

(Chart Courtesy of CDR)

Source: Tim Backshall at CDR 


Tags: , , ,




THE MULTIPLICATION OF MONEY

THE MULTIPLICATION OF MONEY

Courtesy of John Mauldin at Thoughts from the Frontline 

Business people filling pockets and bag with fallen money

Where Is All that Greek Gold? 
The Greeks Write Back 
The Euro and a Conspiracy of Hedge Funds 
So Where’s the Inflation? 
No Help for Homebuilders 

The economy grew in the fourth quarter by 5.9%, the most in years. The adjusted monetary base is exploding. Bank reserves are literally through the roof. The Fed is flooding money into the system in an effort to get banks to lend. An historically normal response by banks (to increase lending) would have been massively inflationary, causing the Fed to stomp on the brakes. Despite raising the almost meaningless discount rate (as who uses it?), this week Ben Bernanke assured Congress of an easy monetary policy, with rates remaining low for a long time. Many ask, how can this not be inflationary?

This week we look at some fundamentals of money supply and the economy. If you understand this, you won’t get misled by people selling investments, telling you to buy this or that based on some chart that shows whatever they are selling to be what you absolutely have to have to protect your portfolio and/or make massive profits. And we touch on a few odds and ends. And yes, I can’t resist, a few more thoughts on Greece. It will make for an interesting letter, as I’m writing on a plane to San Jose. And it will print a bit longer than usual, because there are a lot of charts.

Before we get into the
continue reading


Tags: , , , , , , , , , ,




SHOULD YOU SHORT THE TREASURY MARKET?

SHOULD YOU SHORT THE TREASURY MARKET?

Courtesy of The Pragmatic Capitalist 

Good thoughts on the credit markets from this week’s episode of Wealth Track.  Nassim Taleb has described treasuries as a “no brainer” short position.  Marc Faber refers to treasuries as junk bonds.  Bond experts David Darst and Robert Kessler provide their outlooks for obtaining yield in a de-leveraging world:

Source: Wealth Track 


Tags: , , ,




Corporate Bond Spreads Key To Continued S&P Rally

Corporate Bond Spreads Key To Continued S&P Rally

Courtesy of Mish

Want to know where the S&P 500 (SPY) is headed? The corporate bond market likely holds the answer.

So far this year, investment grade debt sales are on a record pace according to the article Blackstone Group to Sell Debt as Investment-Grade Spreads Widen.

Bloommberg notes that Blackstone (BX) joined Microsoft Corp. (MSFT), the world’s largest software maker, in making a debut offer this year and that investment-grade debt sales of $774 billion are on pace to reach a record.

Meanwhile yield spreads on corporate debt vs. treasuries have declined from 603 basis points on Jan. 2, to 254 basis points today according to Merrill Lynch & Co.’s U.S. Corporate Master index.

Access To Debt Markets Keeps Zombie Corporations Alive

Ability to raise cash now will keep many zombie corporations alive. GM went under when its borrowing dried up. Ford (F) stayed in business because it had a bigger pile of cash relative to its burn rate.

Thus it’s no wonder that stocks are rallying in the face of record demand for debt, demand that has dramatically reduced long term corporate borrowing costs.

“Liquidity is the name of the game for financial-related firms,” said Guy Lebas, chief economist and fixed-income strategist with Janney Montgomery Scott LLC. “Many issuers as well as buyers realize that the improvement we’ve had in spreads over the last eight weeks marks the final step in the credit rally for 2009.”

23 Day Rally In Corporates

The question now is where to from here? The article notes the investment grade bond rally lasted 23 consecutive days, ending two days ago. The widening today is a statistically irrelevant 1 basis point.

Evidence of a pullback is more readily apparent in junk bonds.

Yields on high-yield, high-risk, bonds relative to benchmark rates widened 14 basis points yesterday to 878 basis points, the third straight day of increases after 16 consecutive days of tightening, according to Merrill Lynch & Co’s U.S. High-Yield Master II index. High-yield notes are rated below BBB- by Standard & Poor’s and less than Baa3 by Moody’s Investors Service.

S&P 500 During Corporate Bond Rally

click on chart for sharper image

Keep an Eye on Bonds!

As long as corporate bonds fetch a good bid, which in turn allows companies to raise cash at decreasing costs, the


continue reading


Tags: , , ,




Are They Smarter Than You?

Are They Smarter Than You? 

Einstein, CEOs and CFOsCourtesy of Karl Denninger at The Market Ticker


continue reading


Tags: , , , , ,




Wall Street’s Gains Equal Main Street’s Loss?

My Latest Huffington Post Column: ‘Wall Street’s Gains Equal Main Street’s Loss?’

Courtesy of Michael Panzner at Financial Armageddon

Below is my latest column for the Huffington Post, entitled "Wall Street’s Gains Equal Main Street’s Loss?":

Stock prices have been on a tear lately, bolstered by quarterly earnings reports that have in many cases outpaced expectations and growing optimism that the worst of the crisis-cum-downturn is behind us.

The S&P 500 index, for instance, is up more than 40 percent since its early-March lows, while the technology-laden Nasdaq Composite has scored a 13 percent gain — and, through yesterday, a 12-session winning streak — in the last two weeks alone.

Ordinarily, a bull run like this would be cause for optimism, on the belief that savvy investors see a light at the end of the tunnel. But in the currrent environment, could the good news that is powering share prices be bad news for the economy?

Consider the following recent reports from a cross-section of corporate America:

  • Microsoft announced that revenues declined more than 17 percent amid falling global demand for PCs and servers. According to the Financial Times, the world’s largest software company "sounded a far more cautious note about the prospects for a recovery in the second half of 2009" and its CFO said ‘it’s going to be difficult for the rest of the year….We’re really still not sure we’re out of the woods.’"
  • The CFO of UPS, the 100-year old package delivery giant with a presence in 200 countries, warned the company didn’t have "any confidence that either demand or activity is going to pick up substantially" in the next several months.
  • Diversified manufacturer 3M, with operations in 60 countries, cautioned that it’s "still facing a challenging sales environment with no meaningful improvement in demand yet from several major industrial customers," the Wall Street Journal reported. "He added there is a risk that recent upticks in orders could be a ‘false dawn’ caused by an over-correction in inventory levels earlier this year by 3M’s customers rather than a sustainable recovery in demand."
  • Texas Instruments, the second largest U.S. chipmaker, said "there’s little evidence yet that real growth — based on an improving market for cell phones, computers and other tech products, instead of inventory corrections


continue reading


Tags: , , , , ,




 
 
 

Phil's Favorites

SUDDENLY...

 

SUDDENLY…

Courtesy of 

The environment has been changing but it’s only really become part of the investor consciousness within the last two weeks: Suddenly, cash has a cost. Money isn’t free. Not every business model makes sense. Not every hurdle for investment is sitting an inch or so off the ground.

It’s this normalization of interest rates which, despite it being in effect for three years now, that has all of a sudden gotten some attention.

The yield on a 10-year Treasury now stands above 3%, and se...



more from Ilene

Insider Scoop

Economic Data Scheduled For Monday

Courtesy of Benzinga.

  • The Chicago Fed National Activity Index for September is schedule for release at 8:30 a.m. ET.
  • The Treasury is set to auction 3-and 6-month bills at 11:30 a.m. ET.

Posted-In: Economic DataNews Economics Pre-Market Outlook Markets

...

http://www.insidercow.com/ more from Insider

Zero Hedge

"Largest Ever Ponzi Scheme In Maryland" Rocks Investors, $345 Million Vanishes

Courtesy of ZeroHedge. View original post here.

The Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) announced last month the indictment and arrests of three people, including a Baltimore man, involved in the largest-ever Ponzi scheme in Baltimore-Washington metropolitan area. 

More than 230 people have been taken for a financial rollercoaster as three men ((Kevin B. Merrill ("Merrill"), Jay B. Ledford ("Ledford"), and Cameron Jezier...



more from Tyler

Kimble Charting Solutions

Stock Market Crash Deja Vu? Keep An Eye On This Pattern!

Courtesy of Chris Kimble.

Just over 3 weeks ago, I shared a chart looking at the divergence that has been brewing under the surface of the S&P 500 (NYSEARCA:SPY). Since that post, the S&P 500 finds itself in a deep pullback, with other key stock market indices hitting correction territory at their lows.

Today we provide another look at the divergence and highlight why it’s time for investors to pay closer attention. In the chart below, we compare today’s setup to 2000 and 2007 and the market crashes that followed.  Note, though, that we have NOT broken trend support yet.

Similar to today, in 2000 and 2007 the S&P 500 made a...



more from Kimble C.S.

Chart School

History Rhymes with the Dow

Courtesy of Read the Ticker.

The next 10 years, or even the next 2 years will not be like any of the years in the past 10. Risk is moving closer and closer to the surface.

More from RTT Tv

Market risks coming to the surface:

1) Higher interest rates.

2) US Congress control.

3) China vs USA in trade.

4) World wide Leverage.

5) World wide liquidity issues.

6) US Pensions.

7) Corporate bond market....



more from Chart School

Digital Currencies

Grocers: Get ready to join the blockchain party

 

Grocers: Get ready to join the blockchain party

Five people died and more than 200 got sick during a 2018 E. coli outbreak, the largest in more than a decade. The bacteria was traced to contaminated romaine lettuce. (Shutterstock)

Courtesy of Sylvain Charlebois, Dalhousie University

In the wake of this year’s large E. coli outbreak, Walmart notified its leafy green suppliers that they must be using blockchain technology to trace their products before the end of 2019.

Walmart, one of the world’s largest retailers, has be...



more from Bitcoin

ValueWalk

Vilas Fund Up 55% In Q3; 3Q18 Letter: A Bull Market In Bearish Forecasts

By Jacob Wolinsky. Originally published at ValueWalk.

The Vilas Fund, LP letter for the third quarter ended September 30, 2018; titled, “A Bull Market in Bearish Forecasts.”

Ever since the financial crisis, there has been a huge fascination with predictions of the next “big crash” right around the next corner. Whether it is Greece, Italy, Chinese debt, the “overvalued” stock market, the Shiller Ratio, Puerto Rico, underfunded pensions in Illinois and New Jersey, the Fed (both for QE a few years ago and now for removing QE), rising interest rates, Federal budget deficits, peaking profit margins, etc...



more from ValueWalk

Members' Corner

Why obvious lies still make good propaganda

 

This is very good; it's about "firehosing", a type of propaganda, and how it works.

Why obvious lies still make good propaganda

A 2016 report described Russian propaganda as:
• high in volume
• rapid, continuous and repetitive
• having no commitment to objective reality
• lacking consistency

...

more from Our Members

Biotech

Gene-editing technique CRISPR identifies dangerous breast cancer mutations

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

 

Gene-editing technique CRISPR identifies dangerous breast cancer mutations

Breast cancer type 1 (BRCA1) is a human tumor suppressor gene, found in all humans. Its protein, also called by the synonym BRCA1, is responsible for repairing DNA. ibreakstock/Shutterstock.com

By Jay Shendure, University of Washington; Greg Findlay, ...



more from Biotech

Mapping The Market

Mistakes were Made. (And, Yes, by Me.)

Via Jean-Luc:

Famed investor reflecting on his mistakes:

Mistakes were Made. (And, Yes, by Me.)

One that stands out for me:

Instead of focusing on how value factors in general did in identifying attractive stocks, I rushed to proclaim price-to-sales the winner. That was, until it wasn’t. I guess there’s a reason for the proclamation “The king is dead, long live the king” when a monarchy changes hands. As we continued to update the book, price-to-sales was no longer the “best” single value factor, replaced by others, depending upon the time frames examined. I had also become a lot more sophisticated in my analysis—thanks to criticism of my earlier work—and realized that everything, including factors, moves in and out of favor, depending upon the market environment. I also realized...



more from M.T.M.

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 ...



more from OpTrader

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

...

more from Promotions

All About Trends

Mid-Day Update

Reminder: Harlan 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...

more from David





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...

Learn more About Phil >>


As Seen On:




About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

Market Shadows >>