Posts Tagged ‘financial markets’

Negative TIPS Yields Provide Some Tips On The Economy

Negative TIPS Yields Provide Some Tips On The Economy

Courtesy of Maulik Mody, Bondsquawk.com

As Treasury rates continue to decline and economic growth slows down, the markets saw the yield on the 5-yr TIPS fall below zero to negative 8 basis points.  So what does a negative yield imply and what is it about TIPS that makes investors buy them even at negative yields? A discussion started by a member of the Bondsquawk community prompted me to write this.

TIPS or Treasury Inflation-Protected Securities are bonds issued by the U.S. Government that provide protection against inflation. Like any bond, it pays a fixed coupon rate but the principal amount is adjusted as per the growth of CPI so that in case of high inflation, the dollar amount of the coupon is in line with inflation, thereby preserving the spending power of the money invested.  At maturity, the bond pays the adjusted principal amount or the original amount, whichever is higher.

The difference between the yield offered by a Treasury and TIPS having the same maturity is an indication of the inflation expectations, also called the breakeven rate. Treasuries are said to offer a nominal rate of interest, which includes real interest rate and inflation expectations, whereas the yield on TIPS is the real interest rate, since it accounts for inflation by adjusting its principal. So what does a negative TIPS yield imply?

The first thing that would come to our minds is deflation. But what it means is exactly the opposite. During deflation, the principal of TIPS would reduce and it would effectively provide lower returns as compared to other securities. In that case, it is better to hold on to the cash rather than buy TIPS. This will cause TIPS prices to fall and its yield to rise. But right now, as Treasury rates are falling on concerns of a shaky recovery, the TIPS yields are falling since inflation expectation remains constant. Because if Treasury yields fell and TIPS yields remain the same, the spread would narrow too much, indicating a bigger problem that’s already on peoples‘ minds right now, viz. deflation.

So now we know that the negative yields are not a result of expectations of deflation but because inflation expectation is more or less constant while real interest rates decrease. Which opens the question that why are investors still buying TIPS with negative yields when inflation expectation…
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INNOVATION: What made America great is now Killing her!

INNOVATION: What made America great is now Killing her! 

"Creative Destruction is Secular not Cyclical"

Courtesy of Gordon T. Long   

What made America great was her unsurpassed ability to innovate.  Equally important was also her ability to rapidly adapt to the change that this innovation fostered. For decades the combination has been a self reinforcing growth dynamic with innovation offering a continuously improving standard of living and higher corporate productivity levels, which the US quickly embraced and adapted to.

This in turn financed further innovation. No country in the world could match the American culture that flourished on technology advancements in all areas of human endeavor. However, something serious and major has changed across America.  Daily, more and more are becoming acutely aware of this, but few grasp exactly what it is.  It is called Creative Destruction. 

It turns out that what made America great is now killing her!

Our political leaders are presently addressing what they perceive as an intractable cyclical recovery problem when in fact it is a structural problem that is secular in nature. Like generals fighting the last war with outdated perceptions, we face a new and daunting challenge. A challenge that needs to be addressed with the urgency and scope of a Marshall plan that saved Europe from the ravages of a different type of destruction. We need a modern US centric Marshall plan focused on growth, but orders of magnitude larger than the one in the 1940’s. A plan even more brash than Kennedy’s plan in the 60’s to put a man of the moon by the end of the decade. America needs to again think and act boldly. First however, we need to see the enemy. As the great philosopher Pogo said: “I saw the enemy and it was I”.

THE  PROBLEM IS NOT CYCLICAL, IT IS SECULAR.

The dotcom bubble ushered in a change in America that is still reverberating through the nation and around the globe. The Internet unleashed productivity opportunities of unprecedented proportions in addition to new business models, new ways of doing business and completely new and never before realized markets.  Ten years ago there was no such position as a Web Master; having a home PC was primarily for doing word processing and creating spreadsheets; Apple made MACs; and ordering on-line was a quaint experiment for…
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California Approaches “Fiscal Meltdown”; Schwarzenegger Declares Fiscal Emergency; Fort Worth Texas Ponders Scrapping Defined Benefit Pension Plans

California Approaches "Fiscal Meltdown"; Schwarzenegger Declares Fiscal Emergency; Fort Worth Texas Ponders Scrapping Defined Benefit Pension Plans

California is broke Courtesy of Mish 

Governor Schwarzenegger has once again furloughed workers, declaring California is in a fiscal emergency. Excuse me for asking but when has California ever not been in a state of fiscal emergency?

Bloomberg reports Schwarzenegger Orders Furloughs Amid California Budget Impasse

California Governor Arnold Schwarzenegger ordered more than 150,000 state workers to take three days of mandatory unpaid time off to conserve cash.

The executive order, effective Aug. 1, stipulates that the furloughs will end when a budget for the fiscal year that began July 1 is enacted, the governor’s press secretary, Aaron McLear, said in an e-mail. It comes after government workers endured furloughs over almost 12 months that ended June 30.

California began its fiscal year without a spending plan after Schwarzenegger and Democrats remained deadlocked over how to fill a $19.1 billion deficit. Controller John Chiang has warned he may again need to issue IOUs to pay bills if the impasse continues into September.

“Every day of delay brings California closer to a fiscal meltdown,” Schwarzenegger said in a statement today. “Our cash situation leaves me no choice but to once again furlough state workers until the Legislature produces a budget I can sign.”

Fiscal Emergency California Style

The Business Spectator reports California state of fiscal emergency: Schwarzenegger

California Governor Arnold Schwarzenegger declared a state of emergency over the state’s finances yesterday, raising pressure on lawmakers to negotiate a state budget that is more than a month overdue and will need to close a $US19 billion ($A21.3 billion) shortfall.

The deficit is 22 per cent of the $US85 billion general fund budget the governor signed last July for the fiscal year that ended in June, highlighting how the steep drop in California’s revenue due to recession, the housing slump, financial market turmoil and high unemployment have slashed its all-important personal income tax collection.

In the declaration, Schwarzenegger ordered three days off without pay per month beginning in August for tens of thousands of state employees to preserve the state’s cash to pay its debt, and for essential services.

California’s budget is five weeks overdue, joining New York among big states with spending plans yet to be approved, and Schwarzenegger and top lawmakers are at an impasse over how to balance the state’s books.


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Technicals vs. Fundamentals: Which are Best When Trading Crude Oil and Natural Gas?

Technicals vs. Fundamentals: Which are Best When Trading Crude Oil and Natural Gas? 

Low angle view of an oil derrick at work in desert setting

By Elliott Wave International

If "fundamentals" drive trend changes in financial markets, then shouldn’t the same factors have consistent effects on prices?

For example: Positive economic data should ignite a rally, while negative news should initiate decline. In the real world, though, this is hardly the case.  On a regular basis, markets go up on bad news, down on good news, and both directions on the same news — almost as if saying "talk to the hand cuz the chart ain’t listening." 

Unable to deny this fly in the fundamental ointment, the mainstream experts often attempt to reconcile the inconsistencies with phrases like "shrugged off," "defied" or "in spite of." 

That begs the next question: How do you know when a market is going to cooperate with fundamental logic and when it won’t? ANSWER: You don’t.

Take, for instance, the first three news items below regarding the July 22 performance in crude oil, versus the fourth headline, which occurred on July 23:

  • Crude prices surge nearly 4% in their sharpest one-day percentage gain since May. The rally was "aided by fears that Tropical Storm Bonnie will enter the Gulf of Mexico over the weekend and disrupt oil production." (Wall Street Journal) 
  • "Oil Prices Soar As Gulf Storm Threat Looms" (Associated Press) 
  • "The storm should keep oil prices bubbling if it continues to strengthen and remain on track." (Bloomberg) 

vs.

  • "Oil Slips From Surge Despite Storm Threats" (Commodity Online) 

Unlike fundamental analysis, technical analysis methods don’t rely on the news to explain or predict market moves. They look at the markets’ internals instead.

*****

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Bernanke is “Unusually Uncertain” – Is that an Improvement?

Bernanke is "Unusually Uncertain" – Is that an Improvement?

ben bernankeCourtesy of Mish 

In response to Bernanke Says Economic Outlook is "Unusually Uncertain", Fed Prepared for "Actions as Needed" I received this comment from "Economics Teacher".

ET Writes…

Ben is forecasting uncertainty and saying the Fed’s prepared for action as needed. Did Uncle Ben strain his cerebrum coming up with that one (forecasting uncertainty)?

I suppose there’s a difference between "unusually uncertain" and "typically uncertain." Either way it comes out this way – Ben doesn’t know squat!

Is "Uncertain" an Improvement?

Bernanke was pretty certain there would not be a recession, that housing was not in a bubble, that the unemployment rate would peak at 8.5%, that paying interest on reserves would enable the Fed to hold short-term rates above 2%.

Bernanke was wrong on every count. At least now he admits he is guessing.

Let’s recap the Fed Uncertainty Principle to see what it suggests may be certain or uncertain.

Fed Uncertainty Principle:
The fed, by its very existence, has completely distorted the market via self reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed’s actions. There would not be a Fed in a free market, and by implication there would not be observer/participant feedback loops either.

Corollary Number One: The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn’t know (much more than it wants to admit), particularly in times of economic stress.

Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Corollary Number Three: Don’t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it’s easier


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BILL GROSS: EVERY NATION FOR ITSELF

BILL GROSS: EVERY NATION FOR ITSELF

Courtesy of The Pragmatic Capitalist 

As always Mr. Gross’ monthly outlook is a must read:

It is this lack of global aggregate demand – resulting from too much debt in parts of the global economy and not enough in others – that is the essence of the problem, which only economists with names beginning in R seem to understand (there is no R in PIMCO no matter how much I want to extend the metaphor, and yes, Paul Rugman fits the description as well!). If policymakers could act in unison and smoothly transition maxed-out indebted consumer nations into future producers, while simultaneously convincing lightly indebted developing nations to consume more, then our predicament would be manageable. They cannot. G-20 Toronto meetings aside, the world is caught up as it usually is in an “every nation for itself” mentality, with China taking its measured time to consume and the U.S. refusing to acknowledge its necessity to invest in goods for export.

Even if your last name doesn’t begin with R, the preceding explanation is all you need to know to explain what is happening to the markets, the global economy, and perhaps your own wobbly-legged standard of living in recent years. Consumption when brought forward must be financed, and that financing is a two-way bargain between borrower and creditor. When debt levels become too high, lenders balk and even lenders of last resort – the sovereigns, the central banks, the supranational agencies – approach limits beyond which private enterprise’s productivity itself is threatened. We have arrived at a New Normal where, despite the introduction of 3 billion new consumers over the past several decades in “Chindia” and beyond, there is a lack of global aggregate demand or perhaps an inability or unwillingness to finance it. Slow growth in the developed world, insufficiently high levels of consumption in the emerging world, and seemingly inexplicable low total returns on investment portfolios – bonds and stocks – lie ahead. Stop whispering (and start shouting) the words “New Normal” or perhaps begin to pronounce your last name with an RRRRRRRRRRRR. Our global economy, our use of debt, and our financial markets have changed – not our alphabet or dictionary.

Source: PIMCO 


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ANALYSTS HAVE BEEN WRONG FOR A DECADE

ANALYSTS HAVE BEEN WRONG FOR A DECADE

Courtesy of The Pragmatic Capitalist

Interesting commentary in the latest McKinsey Quarterly on the analyst community.  As we’ve often noted here, the analysts have been impressively wrong year in and year out.  In fact, McKinsey notes that the analyst community has been too optimistic for the majority of the last decade.  And they haven’t just been wrong – they’ve been horribly wrong.  Their estimates have fallen short by almost 50% over this period:

overopt ANALYSTS HAVE BEEN WRONG FOR A DECADE

Source: McKinsey 


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Voices of Reason in Sea of Insanity

Voices of Reason in Sea of Insanity

Courtesy of Mish

Amphibious assault vehicle makes a landing near Guam

Amidst all the hoopla, cheering, and insanity of throwing money at currencies thinking it will make them rise, here are a few voices of reason on my radar today.

John Hussman

Greek Debt and Backward Induction

…. The bottom line is that 1) aid from other European nations is the only thing that may prevent the markets from provoking an immediate default through an unwillingness to roll-over existing debt; 2) the aid to Greece is likely to turn out to be a non-recourse subsidy, throwing good money after bad and inducing higher inflationary pressures several years out than are already likely; 3) Greece appears unlikely to remain among euro-zone countries over the long-term; and 4) the backward induction of investors about these concerns may provoke weakened confidence about sovereign debt in the euro-area more generally. …

Looking at the current state of the world economy, the underlying reality remains little changed: there is more debt outstanding than is capable of being properly serviced. It’s certainly possible to issue government debt in order to bail out one borrower or another (and prevent their bondholders from taking a loss). However, this means that for every dollar of bad debt that should have been wiped off the books, the world economy is left with two – the initial dollar of debt that has been bailed out and must continue to be serviced, and an additional dollar of government debt that was issued to execute the bailout.

Notice also that the capital that is used to provide the bailout goes from the hands of savers into the hands of bondholders who made bad investments. We are not only allocating global savings to governments. We are further allocating global savings precisely to those who were the worst stewards of the world’s capital. From a productivity standpoint, this is a nightmare. New investment capital, properly allocated, is almost invariably more productive than existing investment, and is undoubtedly more productive than past bad investment. By effectively re-capitalizing bad stewards of capital, at the expense of good investments that could otherwise occur, the policy of bailouts does violence to long-term prospects for growth. Looking out to a future population that will increasingly rely on the productivity of a smaller set of younger workers (and foreign labor) in order to provide for an


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Greece Heads Back To Square One As EU’s Bazooka Was Nothing More Than A Water Pistol

Greece Heads Back To Square One As EU’s Bazooka Was Nothing More Than A Water Pistol

NATO Summit Preparations

Courtesy of Mish 

Europe’s rescue plan for Greece is now bank at square one. The reason the plan failed is there never really was a plan to begin with, just bazooka talk.

Please consider Greece May Be Heading Back to ‘Square One’ on Aid as Bonds Fall

Europe’s week-old rescue plan for Greece has so far failed to do what its leaders predicted: reduce borrowing costs for the region’s most indebted country.

The yield on 10-year Greek government bonds has increased 24 basis points to 6.522 percent since EU leaders agreed to the aid blueprint on March 25. That’s the highest in a month and more than double the rate paid by Germany. Seven-year bonds sold by Greece on March 29 fell for a second day yesterday.

“What they were hoping for was to set up some sort of arrangement that never has to be used,” said Phyllis Reed, head of bond research in London at Kleinwort Benson, which manages about $32 billion. “The markets have sniffed that out and it seems like we’re heading back to square one.”

IMF Managing Director Dominique Strauss-Kahn said on March 30 the lender would set the terms of any loans to Greece just as it does with other countries. Trichet said before the summit that ceding control to the IMF would be “very, very bad.” He later changed his tone to say he was “pleased” with the outcome.

“It’s supposed to be a joint EU-IMF thing, but it sounds like the IMF have plans of their own,” said Reed. “There are still a lot of question marks.”

With investors keeping up the pressure, Greek opposition politicians are criticizing the EU plan. Coalition of the Left deputy Dimitris Papadimoulis yesterday mocked Finance Minister George Papaconstantinou for comparing aid to a “loaded gun” that would threaten markets.

“The gun,” he said, “has proved to be a water-pistol.”

Pitchfork Music Festival - Day 3

Waterless Water Pistol

Rising Greek bond yields suggest that the EU’s loaded gun was not a bazooka but a water pistol without water.

That will remain the case as long as Germany and France argue about what needs to happen.

German Chancellor Angela Merkel even asked for EU treaty changes so that serial violators of EMU rules could be expelled from…
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What I’m Beating TLP With This Week

Here’s Jr. Deputy Accountant’s weekly reading assignment. She has a terrific sense of humor, the kind needed to keep a positive attitude while reading details. – Ilene 

What I’m Beating TLP With This Week

It’s been a long exciting week filled with Greece action, Obamacare, and failed Treasury auctions. Since JDA’s resident paperboy doesn’t believe the Fed is an evil institution and tends to read too much HuffPo and not enough Ron Paul, I’m grabbing the paper, rolling it up and whacking him (hard) with the following:

It’s Official – America Now Enforces Capital Controls Gee, think we should start reading the bill? (Zero Hedge)

Goldman Sachs’ controversial ‘mommy-track’ In fairness to TLP, he didread this one. You should too. (The Week)

Does Unemployment Insurance Cause Unemployment? It’s a legitimate question. Does the FDIC encourage moral hazard? Mmm hmm. (Wall St Cheat Sheet)

On Deficits And Debt-Financed Government Market Ticker is always good for a nice reality check. Especially one that comes out to $760 billion in interest expense alone – and yes, that’s American debt. (Market Ticker)

The “shop till you drop” economy "Who would want to invest in the United States when there are fiscally solvent, rapidly growing emerging economies to invest in?" Who indeed. (The Animal Spirits Page)

Throwing Gas On The Fire Wait a second, are the regulators the problem? (Bank Lawyer’s Blog)

Repo 105: Was Lehman’s Accounting Only Ticking Boxes? Or Is It A Ticking Box? I smell smoke, Jim Peterson smells something awry with financial reporting (as in journalism, not statements) and rules-based accounting. JDA humbly concurs. (Re:Balance)

Is InterOil Built on a Foundation of Fraud? InterOil better look out, you don’t want Sam Antar on your ass (I’m not scared, he’s afraid of me and I’m training him for his next bout) (White Collar Fraud)

TGIF – Greece Fixed AGAIN! Phil seems to think the EU is bipolar. Has the EU asked its doctor about Abilify? (Phil’s Stock World)

The Latest To Get Ripped Off By The Banksters? The States I’m shocked. Completely and totally shocked. (LOLFed


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Kimble Charting Solutions

DAX Index Hits Two 18-Year Support Lines, Creates Large Bullish Reversal

Courtesy of Chris Kimble

Has the DAX index from Germany experience a large decline of late? Yes, it has!

Has the decline broken long-term rising support lines? Not so far!

This chart looks at the DAX index on a monthly basis over the past 25-years. Over the past 6-years, it has traded sideways inside of the blue rectangle at (1).

The decline this year saw the DAX hit two 18-year rising support lines at (2) last month, where a large bullish reversal took place.

Until broken, important support remains in play at (2), which is bullish for this key index....



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Zero Hedge

Aaand Its Gone... The Biggest Support For Asset Prices

Courtesy of ZeroHedge View original post here.

Authored by Lance Roberts via RealInvestmentAdvice.com,

Since the passage of “tax cuts,” in late 2017, the surge in corporate share buybacks has become a point of much debate. I previously wrote that stock buybacks were setting records over the past couple of years. Jeffery Marc...



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Phil's Favorites

Here's how scientists are tracking the genetic evolution of COVID-19

 

Here's how scientists are tracking the genetic evolution of COVID-19

Why do scientists care about mutations on the coronavirus? Alexandr Gnezdilov Light Painting

Niema Moshiri, University of California San Diego

When you hear the term “evolutionary tree,” you may think of Charles Darwin and the study of the relationships between different species over the span of millions of years.

While the concept of an “evolutionary tree” originated in Darwin’s “...



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Biotech/COVID-19

Here's how scientists are tracking the genetic evolution of COVID-19

 

Here's how scientists are tracking the genetic evolution of COVID-19

Why do scientists care about mutations on the coronavirus? Alexandr Gnezdilov Light Painting

Niema Moshiri, University of California San Diego

When you hear the term “evolutionary tree,” you may think of Charles Darwin and the study of the relationships between different species over the span of millions of years.

While the concept of an “evolutionary tree” originated in Darwin’s “...



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ValueWalk

Activists demand revamp of anti-redlining law

By Anna Peel. Originally published at ValueWalk.

Over 100 California Community Organizations and Leaders Call for Banking Regulators to Stop Planned Revamp of Anti-Redlining Law during COVID19 Crisis

Q1 2020 hedge fund letters, conferences and more

Worker, Housing, and Small Business advocates call on all resources to be dedicated to saving lives and responding to Coronavirus

San Francisco--Amongst an unprecedented public health crisis that threatens hundreds of thousands of lives, as small businesses are shuttered across California and the nation, and as millions file for...



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Chart School

The Big Short movie guides us to what is next for the stock market

Courtesy of Read the Ticker

There is nothing new in WallStreet, it is only the players that change. Sometimes a market player or an event gets ahead of the crowd and WallStreet has to play catch up.

Previous Post Dow 2020 Crash Watch Dow, Three strikes and your out!

It is important to understand major WallStreet players do not want to miss out on a money making moves.  







...

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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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The Technical Traders

Founder of TradersWorld Magazine Issued Special Report for Free

Courtesy of Technical Traders

Larry Jacobs owner and editor of TradersWorld magazine published a free special report with his top article and market forecast to his readers yesterday.

What is really exciting is that this forecast for all assets has played out exactly as expected from the stock market crash within his time window to the gold rally, and sharp sell-off. These forecasts have just gotten started the recent moves were only the first part of his price forecasts.

There is only one article in this special supplement, click on the image or link below to download and read it today!

...

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Members' Corner

10 ways to spot online misinformation

 

10 ways to spot online misinformation

When you share information online, do it responsibly. Sitthiphong/Getty Images

Courtesy of H. Colleen Sinclair, Mississippi State University

Propagandists are already working to sow disinformation and social discord in the run-up to the November elections.

Many of their efforts have focused on social media, where people’s limited attention spans push them to ...



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Digital Currencies

While coronavirus rages, bitcoin has made a leap towards the mainstream

 

While coronavirus rages, bitcoin has made a leap towards the mainstream

Get used to it. Anastasiia Bakai

Courtesy of Iwa Salami, University of East London

Anyone holding bitcoin would have watched the market with alarm in recent weeks. The virtual currency, whose price other cryptocurrencies like ethereum and litecoin largely follow, plummeted from more than US$10,000 (£8,206) in mid-February to briefly below US$4,000 on March 13. Despite recovering to the mid-US$6,000s at the time of writin...



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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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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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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. Contact Ilene to learn about our affiliate and content sharing programs.