Posts Tagged ‘risk aversion’

Limited Liquidity in Corporate Bonds is Another Canary in a Coal Mine

Limited Liquidity in Corporate Bonds is Another Canary in a Coal Mine

Taxidermy canary under glass dome.

Courtesy of Rom Badilla, CFA – Bondsquawk.com

Bloomberg is reporting that liquidity is harder to come by as trading costs soar. 

The gap between the cost to buy and sell corporate credit reached the widest in nine months in another sign that investors are increasingly wary of all but the safest government securities amid Europe’s sovereign debt crisis.

The bid-ask spread for credit-default swaps on U.S. investment-grade bonds surged to an average 8.86 basis points as of May 21 from 5.42 basis points a month ago, according to CMA DataVision prices. The difference jumped to a one-year high of 10.57 on May 7, from as low as 3.1 in 2007.

Higher trading cost is not just centered on Credit Default Swaps but also their cash bond counterparts.

The bid-ask spread for AA rated U.S. corporate bonds has increased to about 5 basis points from about 1 basis point earlier this year, said Mark Jicka, managing director at Mizuho Securities USA in New York. The gap for lower rated investment- grade debt has widened to about 10 basis points from 5 basis points.

Liquidity begins to suffer as bond investors sell their holdings, flooding the market with supply.  Also, liquidity can tank as demand evaporates as dealers hunker down by either passing or giving “throw-away” bids to avoid building inventory and taking on risk on their balance sheet.  Furthermore, most dealers will widen out the bid and ask for bonds in their inventory in order to be compensated for the risk of holding it and the event of any deterioration of the credit.

I have seen similar markets where liquidity is poor and finding an exit on a corporate or mortgage bond is difficult.  The Long Term Capital Management episode in the late 90’s and the recent subprime crisis is a good example of poor liquidity during uncertain times.

When Wall Street begins to go into risk aversion mode where they are reluctant to buy bonds from an investor, its a clear signal that choppy waters are ahead.

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What Happens in the Amygdala… Damage to Brain’s Decision-Making Area May Encourage Dicey Gambles

Evidence that the brain’s region called the "amygdala" is at least partly responsible for fear-based loss aversion: – Ilene

What Happens in the Amygdala… Damage to Brain’s Decision-Making Area May Encourage Dicey Gambles

Image Of Thinking Man's Brain Through Bowler Hat

By Katie Moisse at Scientific American   

Imagine you’ve lost your job. You have some money saved, and a chance to double it with a gamble. But if you lose the bet, you’ll forfeit everything. What would you do?

Most people would not gamble their savings, according to Benedetto De Martino of California Institute of Technology, author of a study published February 8 in Proceedings of the National Academy of Science. People tend to choose avoiding losses over acquiring gains—a behavior known as loss-aversion.

But people with damage to the amygdala—an almond-shaped part of the brain involved in emotion and decision-making—are more likely to take bigger risks with smaller potential gains, De Martino’s study found. Two women with bilateral amygdala damage showed a dramatic reduction in loss aversion compared with age-matched control subjects on a series of experimental gambles, despite understanding full well the values and risks involved.

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Zero Hedge

EU Backs Off Turkey Arms Embargo As Erdogan Holds All The Cards... 3.6 Million Of Them

Courtesy of ZeroHedge View original post here.

If you've been paying attention you might have picked up on the irony that Turkey now appears the most powerful country in Europe thanks to the refugee threat. It's further appeared unfazed that the EU has appeared ready to ban all arms deliveries to Ankara over its internationally condemned military incursion into Syria, following Germany and France over the weekend announcing a temporary suspension, fearing weapons would be used a...



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Phil's Favorites

Our Nuts Are in Danger

 

Our Nuts Are in Danger

Courtesy of John Mauldin, Thoughts from the Frontline

Life would be so much easier if we didn’t have to worry about our financial futures. Though I suppose we don’t have to worry. Animals don’t. Squirrels instinctively store away nuts and thus live through winter without much thought.

We humans have retirement winters, and we’re more sophisticated than squirrels. We generally outsource the job of managing our nuts/money to professionals. All well and good if we save enough and if the professionals do their jobs right. As we saw last week, the elected squirrels who run Social Security haven’t evolved to face changing con...



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Insider Scoop

10 Biggest Price Target Changes For Monday

Courtesy of Benzinga

  • KeyBanc lowered Allegheny Technologies Incorporated (NYSE: ATI) price target from $33 to $28. Allegheny Technologies shares closed at $21.32 on Friday.
  • Stephens & Co. lowered the price target for Delta Air Lines, Inc. (NYSE: DAL) from $75 to $57. Delta Air shares closed at $52.95 on Friday.
  • KeyBanc cut Universal Stainless & Alloy Products, Inc. (NASDAQ: USAP) price target from $24 to $20. Universal Stainless shares closed at $14.69 on Friday.
  • ...


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Kimble Charting Solutions

New Gold Bull Market? Not Until This Happens!

Courtesy of Chris Kimble

After a big summer rally, Gold peaked out at $1566/oz in September.

Since then, Gold prices have been consolidating between $1475 and $1550.

So what’s happening here? Enter the Swiss Franc currency…

In today’s chart, we look at a key indicator (and correlation) for Gold. As you can see, the Swiss Franc has an uncanny resemblance to Gold.

Both Gold and the Franc are testing heavy resistance at the same time.

Until both breakout at (2), odds are low that a new Gold bull market emerges with another big rally leg higher....



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The Technical Traders

Lots of Upside Ahead for the Metals and Miners

Courtesy of Technical Traders

Palisade Radio talks with Chris as he discusses his approach to trading and why technical analysis works for him. He focuses on the chart and price action and explains why investors need to follow a trading strategy that suits their personality.

He cautions that a broad sell-off is likely when stocks move into the next bear market. This liquidation will pull everything down, including gold, for a time. Afterward, he anticipates a massive rally in the juniors.

Time Stamp References:

...



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Chart School

US Economic Review 2019Q4

Courtesy of Read the Ticker

An investor must form an opinion of the wider economic risk, here is a small sample of readtheticker.com US economy review.


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Example of the first chart in the video.


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Fundamentals are important, and so is market timing, here at readtheticker.com we believe a combination of ...

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Digital Currencies

Zuck Delays Libra Launch Date Due To Issues "Sensitive To Society"

Courtesy of ZeroHedge View original post here.

Authored by William Suberg via CoinTelegraph.com,

Facebook is taking a much more careful approach to Libra than its previous projects, CEO Mark Zuckerberg has confirmed. 

“Obviously we want to move forward at some point soon [and] not have this take many years to roll out,” he said. “But ...



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Lee's Free Thinking

Look Out Bears! Fed New QE Now Up to $165 Billion

Courtesy of Lee Adler

I have been warning for months that the Fed would need new QE to counter the impact of massive waves of Treasury supply. I thought that that would come later, rather than sooner. Sorry folks, wrong about that. The NY Fed announced another round of new TOMO (Temporary Open Market Operations) today.

In addition to the $75 billion in overnight repos that the Fed issued and has been rolling over since Tuesday, next week the Fed will issue another $90 billion. They’ll come in the form of three $30 billion, 14 day repos to be offered next week.

That brings the new Fed QE to a total of $165 billion. Even in the worst days of the financial crisis, I can’t remember the Fed ballooning its balance sheet by $165 bi...



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Biotech

The Big Pharma Takeover of Medical Cannabis

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

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

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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.

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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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