Posts Tagged ‘money market’

The Low-Interest-Rate Trap

The Low-Interest-Rate Trap

Courtesy of John Rubino of Dollar Collapse 

Cannon Beach, Oregon, USA

Pretend for a second that you recently retired with a decent amount of money in the bank, and all you have to do is generate a paltry 5% to live in comfort for the rest of your days. But lately that’s been easier said than done. Your money market fund yields less than 1%. Your bond funds are around 3% and your bank CDs are are down to half the rate of a couple of years ago. Stocks, meanwhile, are down over the past decade and way too volatile in any event. If you don’t find a way to generate that 5% you’ll have to start eating into capital, which screws up your plan, possibly leaving you with more life than money a decade hence.

Now pretend that you’re running a multi-billion dollar pension fund. You’ve promised the trustees a 7% return and they’ve calibrated contributions and payouts accordingly. But nothing in the investment-grade realm gets you anywhere near 7%. If you come up short, the plan’s recipients won’t get paid in a decade or – the ultimate horror – you’ll have to ask the folks paying in to contribute more, which means you’ll probably be scapegoated out of a job.

In either case, what do you do? Apparently you start buying junk bonds. According to Saturday’s Wall Street Journal, junk issuance is soaring as desperate investors snap up whatever paper promises to get them the yield they’ve come to depend on. Here’s an excerpt:

‘Junk’ Bonds Hit Record

U.S. companies issued risky “junk” bonds at a record clip this week, taking advantage of keen investor appetite for returns amid declining interest rates and tepid stock markets.

The borrowing binge comes as the Federal Reserve keeps interest rates near zero and yields on U.S. government debt are near record lows. Those low rates have spread across a variety of markets, making it cheaper for companies with low credit ratings to borrow from investors.

Corporate borrowers with less than investment-grade ratings sold $15.4 billion in junk bonds this week, a record total for a single week, according to data provider Dealogic. The month-to-date total, $21.1 billion, is especially high for August, typically a quiet month that has seen an average of just $6.5 billion in issuance over the past decade.

For the year, the volume of U.S.


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Money Markets are the New Suspenders

Money Markets are the New Suspenders

By EB, courtesy of Zero Hedge

The Financial Times recently reported on the Fed’s latest exit strategy to eventually contain the inflation zombie:

 During the crisis, the Fed created roughly $800bn of additional bank reserves to finance asset purchases and loans. This total is likely to rise in the coming months as the central bank completes its asset purchases and the Treasury unwinds financing it provided to the Fed. Fed officials think they could raise interest rates even with this excess supply of reserves by offering to pay banks to deposit their surplus funds with it rather than lend them out. However, they also want to use reverse repos in tandem to soak up some of the excess reserves. Policymakers call this a “belt and braces approach”. [The latter, clearly a nod to the great Gekko.]

nice suspenders, zero hedgeTD touched on this last Thursday, and we will expand upon it here as it is particularly relevant to our ongoing theory that it is the proceeds from permanent open market operations (POMOs) and their close cousins that are driving equities.  Though this may be received wisdom to ZH readers, the Fed has done us the favor of providing additional evidence through the FT story.  A bit of background, as we are new contributors to this forum:

Money Supply:  Based on our previous research on the effects of swings in M2 non-seasonally adjusted money supply (M2) on the stock market, we were a bit surprised in July 09 by the resiliency of the rally, which continued in the face of such a dramatic contraction in M2.  The dismal Durable Goods report from last Friday confirms that the capital goods sector is still under significant pressure as a result of a lack of money in the general economy.  With banks not lending to normal businesses and consumer credit contracting equally as violently, what is the basis for this rally and from where does the never-ending flow of equities juice flow? 

Bank Non-Borrowed Excess Reserves:  The Fed statistic that most closely correlates with the 2009 equities run-up appears to be bank non-borrowed excess reserves (bank NBER), which


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More signs of liquidity withdrawal, now from the U.S. Treasury

More signs of liquidity withdrawal, now from the U.S. Treasury

Courtesy of Edward Harrison at Credit Writedowns

Yesterday I mentioned the announcement by the FDIC to end its debt guarantee program and opined that this was the first sign of tightening/liquidity withdrawal by the U.S. government.  Today the evidence is mounting that this is indeed an orchestrated move toward policy normalization.

The FT spoke to treasury officials who confirmed this interpretation:

A senior Treasury official said “we are pivoting and starting to pull back on certain programmes.” The administration will allow the money market mutual fund guarantee programme to expire as scheduled on September 18, and is backing a review by the Federal Deposit Insurance Corporation that is likely to see funding guarantees for bank debt either ended or restricted to emergency cases on penal terms.

How the Federal Reserve acts is the key missing component here, both in terms of returning repoed assets to the banks which own them and in terms of eventual interest rate decisions. My guess at this point is that the Fed will look to reduce its balance sheet well before it looks to increase interest rates.

In addition, the Fed had provided up to $650 billion in swap lines to other central banks at the height of the financial crisis.  Those swap lines are now down to $70 billion (source: Marc Chandler, Brown Brothers Harriman). This reduction in a liquidity-induced appetite for U.S. dollars may be a major reason the Dollar is falling right now even against the Pound and the Swiss Franc where the central banks are engaging in quantitative easing.

Update 1530ET: See also Bailouts Are Shrinking, Geithner Says from DealBook:

One of President Obama’s top economic strategists said on Thursday that the government was now starting to shrink many parts of its gigantic financial bailout following the collapse of Lehman Brothers last September, The New York Times’s Edmund L. Andrews reports.

“We must begin winding down some of the extraordinary support we put in place for the financial system,” said the Treasury Secretary, Timothy F. Geithner, in written testimony prepared for the Congressional Oversight Panel on the Treasury’s $700 billion rescue program. (Go to a Webcast of Thursday’s hearing.)


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JAPAN ALL OVER AGAIN?

JAPAN ALL OVER AGAIN?

Courtesy of The Pragmatic Capitalist

From the always informative David Rosenberg:

Finally, for all the talk of a V-shaped recovery, outside of a brief 3Q bounce — likely as brief as the spurt in last year’s second quarter — there is no such thing and the money market is telling you as much. When the yield on the three-month T-bill is 14 basis points above zero, you know that this has a real Japanese feel to it.

 JAPAN ALL OVER AGAIN? 

 


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Phil's Favorites

Trump's claim that Europe is 'losing its culture' is racism - and it must be challenged

 

Trump's claim that Europe is 'losing its culture' is racism – and it must be challenged

Courtesy of Chris Allen, University of Leicester

According to Donald Trump, Britain and Europe is “losing its culture” as a result of immigration. In an interview with The Sun newspaper, given in Brussels shortly before travelling to London, Trump explained how migrants from the Middle East and Africa are permanently changing Europe for the worse.

Speaking about the pain it causes him, given that both his mother and father were European, he added:

I think what has happened to Europe is a shame. Allowing the immigration to take place ...



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Zero Hedge

How CEOs Actually Spend Their Time: It's Not How You Think

Courtesy of ZeroHedge. View original post here.

Submitted by Nicholas Colas and Jessica Rabe of DataTrek Research

Legendary Harvard Business School professor Michael Porter and the dean of HBS have a new must-read article out; we have a summary and our take below. The topic: how CEOs actually spend their time. It’s not how you think...

When we came across a new study in the Harvard Business Review on how CEOs spend their time, we took notice. Time is especially scarce for CEOs after all, and how they use it sends a message about their ...



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Chart School

Reading the tape of ticker CVR Partners (UAN)

Courtesy of Read the Ticker.

This stock is going from very bad, to bad, but this change is good enough to change share price.


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Reference turnaroundstockinvesting.com, fundamentals for CVR Partners (readtheticker.com is not a member nor has any association to this service).






...

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Insider Scoop

Pot Stocks, ETFs, Top News And Data From The Cannabis Industry This Week

Courtesy of Benzinga.

This week, Tilray and Sproutly Canada went public, Sunniva announced plans to spin off its Canadian assets, Zynerba Pharmaceuticals posted positive data for its Phase 2 trial for ZYN002 in Fragile X syndrome, and Zogenix released positive top-line results from its second pivotal Phase 3 study of ZX008 in Dravet Syndrome.

Michigan added 11 new ailments to its list of qualifying conditions for medical cann...



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Digital Currencies

Mythbusting: Why Bitcoin Can Never Go To Zero

Courtesy of ZeroHedge. View original post here.

Authored by Darryn Pollock via CoinTelegraph.com,

Bitcoin’s polarizing effect has people on both ends of the scale either proclaiming it is going to the moon or it is going to zero. The volatile, unprecedented, and revolutionary monetary system that is cryptocurrency has a future that not many can accurately pred...



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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...



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Biotech

Opioids don't have to be addictive - the new versions will treat pain without triggering pleasure

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

 

Opioids don't have to be addictive – the new versions will treat pain without triggering pleasure

shutterstock.

Courtesy of Tao Che, University of North Carolina – Chapel Hill

The problem with opioids is that they kill pain – and people. In the past three years, more than 125,000 persons died from an opioid overdose – an average of 115 people per day – exceeding the number killed in ...



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ValueWalk

Buffett At His Best

By csinvesting. Originally published at ValueWalk.

Bear with me as I share a bit of my history that helped me create SkyVu and the Battle Bears games. The University of Nebraska gave me my first job after college. I mostly pushed TV carts around, edited videos for professors or the occasional speaker event. One day, Warren Buffet came to campus to speak to the College of Business. I didn’t think much of this speech at the time but I saved it for some reason. 15 years later, as a founder of my own company, I watch and listen to this particular speech every year to remind myself of the fundamentals and values Mr. Buffett looks for. He’s addressing business students at his alma mater, so I think his style here is a bit more ‘close to home’ than in his other speeches. Hopefully many of you find great value in this video like I have. Sorry for the VHS...



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Kimble Charting Solutions

The Stock Bull Market Stops Here!

 

The Stock Bull Market Stops Here!

Courtesy of Kimble Charting

 

The definition of a bull market or bull trends widely vary. One of the more common criteria for bull markets is determined by the asset being above or below its 200 day moving average.

In my humble opinion, each index above remains in a bull trend, as triple support (200-day moving averages, 2-year rising support lines, and February lows) are still in play ...



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Members' Corner

Cambridge Analytica and the 2016 Election: What you need to know (updated)

 

"If you want to fundamentally reshape society, you first have to break it." ~ Christopher Wylie

[Interview: Cambridge Analytica whistleblower: 'We spent $1m harvesting millions of Facebook profiles' – video]

"You’ve probably heard by now that Cambridge Analytica, which is backed by the borderline-psychotic Mercer family and was formerly chaired by Steve Bannon, had a decisive role in manipulating voters on a one-by-one basis – using their own personal data to push them toward voting ...



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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

NewsWare: Watch Today's Webinar!

 

We have a great guest at today's webinar!

Bill Olsen from NewsWare will be giving us a fun and lively demonstration of the advantages that real-time news provides. NewsWare is a market intelligence tool for news. In today's data driven markets, it is truly beneficial to have a tool that delivers access to the professional sources where you can obtain the facts in real time.

Join our webinar, free, it's open to all. 

Just click here at 1 pm est and join in!

[For more information on NewsWare, click here. For a list of prices: NewsWar...



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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...

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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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