Posts Tagged ‘Federal Reserves’

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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What Are Your Thoughts: Quadruple Top or Record Highs?

 

What Are Your Thoughts: Quadruple Top or Record Highs?

Courtesy of 

Michael Batnick and Josh Brown play What Are Your Thoughts? and cover some of the most discussed topics going on right now –

* The S&P 500 facing own its old all-time high of 2800

* Why does the real estate seller pay the brokerage fee?

* Did NBA trade deadline / All Star Break overshadow the Super Bowl

* How do investors know when something is priced in?

...

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Zero Hedge

Fed Minutes: "Almost All" Fed Officials Want Plan To Stop Reducing Balance Sheet By Year End

Courtesy of ZeroHedge. View original post here.

Key update: it appears that in its rush to blast the first headline on the minutes, Bloomberg made a major error, reporting the following:

  • BBG: ALMOST ALL FED OFFICIALS WANTED TO HALT RUNOFF LATER THIS YEAR

That however is incorrect, and Reuters captured what the Fed really said, which is significantly different from what the Fed actually said, to wit:

  • REUTERS (correct): ALMOST ALL PARTICIPANTS THOUGHT IT WOULD BE DESIRABLE TO ANNOUNCE PLAN TO STOP...


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Kimble Charting Solutions

Are Bank Stocks Ready to Right-Side the Bull Market?

Courtesy of Chris Kimble.

The bank sector is a good indicator of the health of the broader stock market.

Bulls like to see the banks in a leadership role because it indicates that the economy is doing well. But when they begin to lose momentum and underperform, it often leads to pullbacks and corrections.

As you can see in today’s chart, the Bank Index (BKX) began to stumble well before the recent correction. And that bearish divergence was a warning to market bulls – similar to the 2015-2016 setup.

On the other hand, the recent rally has given bulls an opportunity to right-side th...



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ValueWalk

Whitney Tilson Likes Activision Blizzard On Fortnite Mania

By Jacob Wolinsky. Originally published at ValueWalk.

Whitney Tilson‘s email to investors discussing Activision; Snapchat; TradeStops; and hiring writer or editor .

1) I’m going to start sending out short blurbs on stocks that are on my radar screen that I think are interesting enough to do a second round of research. To be clear: these are NOT stocks I own or am recommending – just ones that pass my initial five-minute screen (which few do these days!) that I’m doing some more work on. That means reading the latest quarterly earnings and annual report, investor presentation, any write-ups on ValueInvestorsClub, SumZero or Seeking ...



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Chart School

RTT browsing latest..

Courtesy of Read the Ticker.

Please review a collection of WWW browsing results. The information here is delayed by a few months, members get the most recent content.



Date Found: Thursday, 02 August 2018, 07:48:20 PM

Click for popup. Clear your browser cache if image is not showing.


Comment: $600 BN interest payments for US gov, print baby print



Date Found: Sunday, 05 August 2018, 09:22:26 PM

Click for popup. Clear your browser cache if image is not showing.


Comment: Hire FED interest rates always brings double trouble



Date Found: Monday, 06 August ...

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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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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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