Frus@Fed and inflation -- trotsky, 15:48:44 06/13/07 Wed
evidently, the Fed believes it can gauge what the 'correct' short term interest rate should be based on flawed economic data that describe the recent past. that this is simply an impossible task should be obvious. whatever the bureaucracy decides, even if it might from time to time make the right guess by pure chance, will be suboptimal compared to a rate set by a free market.
it follows that the Fed should be abolished - it fulfills no function of any value to society at large.
# kitcotodd@MRB -- trotsky, 15:42:45 06/13/07 Wed
it IS cheap. based on current metals prices its fair value is in the $8-$9 region (considering takeover premia paid for in-ground copper and gold resources in the past two years).
# RIP@ 'tax haven racket' -- trotsky, 15:40:10 06/13/07 Wed
beware of the socialist do-gooders swooping down on the tax havens. these tax havens are the only reminder humanity possesses that the State and its mafia-like tax extortion are not hewn in stone and inescapable.
furthermore, without them, no state would have an incentive to keep its taxes low - since there would be no more competition. the EU's 'tax harmonizers' are similarly dangerous
# @Hulbert addendum -- trotsky, 15:34:41 06/13/07 Wed
my major criticism is that Hulbert often tends to put his data into the wrong context - and is completely undeterred when the outcome is repeated failure (as e.g. in the gold timers index he publishes).
@Hulbert -- trotsky, 15:32:30 06/13/07 Wed
"The HBNSI currently stands at minus 35.8%, which means that the average bond timer is allocating 35.8% of his bond portfolio to shorting bonds. That's a bearish bet, to be sure -- but not overwhelmingly so. The record-low reading for the HBNSI is minus 72.6%.
Furthermore, on seven separate occasions over the last five years, the HBNSI dropped lower than minus 50%. The average 10-year T-note yield on those occasions was 4.66% -- way lower than where it stands now."
that constitutes a bullish divergence.
"If a 10-year T-note yield of 5.25% doesn't cause the bond timers to throw in the towel, what will? "
35% short bonds is not throwing the towel? considering the high cost of carry (5.25%) of a bond short position, i would say this isn't exactly what one would call bullish sentiment (nevermind overly bullish sentiment).
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# philbond, long term 10-year note chart, 9:32 -- trotsky, 14:32:43 06/13/07 Wed
this chart contains a mistake. it's not your fault, as many data services have simply continued publishing the mistake over the years. the big plunge at the end of 1999 never happened. what happened was that the underlying bonds and notes for the 10 and 30 yr. futures contract were changed to more current issues with lower coupons. in short, the chart needs to be adjusted for that change (everything that happened before that seeming downspike in late '99 must be shifted down by exactly this amount).
Orlandini has been basing long term analysis and predictions on this wrong bond chart for the past 6 years as it were. the actual all time high in the continuous 10 yr. note contract was the 2003 high, so far (the 30-year bond made its high in the summer of 2005).
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# @gold, pm stocks -- trotsky, 13:57:03 06/13/07 Wed
it looks like the sector has another rather weakish bounce.
it won't take much now to make the trend unmistakably bearish - we're perilously close to support (HUI 317-320), and some big caps such as GFI have already given up their supports - even if it's only a slight break. (NEM has ceased to be the subject of polite conversation quite a while ago).
on the positive side, we have a slight - a very slight - bullish divergence between the cumulative Rydex pm fund CF ratio and the fund's price, a relatively low CEF premium, and CEF sitting just below its 200 dma (so far, CEF going below its 200 dma has always coincided with turning points from down to up in the course of the bull market).
also, the fact that HUI has held on to its support, while the PoG has plunged below its equivalent support level constitutes a slight bullish divergence (one making a higher low while the other makes a lower one).
the problem is, all it would take to erase all those divergences is one bad day.
if the divergences don't result in a positive outcome very soon, the idea that a mid cycle correction is underway would be almost inescapable. the fact that the one stock holding up HUI/XAU is a copper producer stock (FCX) is hardly a consolation.
the sector needs a convincing upturn - something that is clearly different from the weak bounces and the steady drip-drip-drip lower we have lately seen.
as an aside, i continue to think that the dollar will present a problem to that - inter alia, a major feature of the bearish dollar argument has begun to shift, namely the trade deficit. the downside surprises in the deficit number are beginning to become quite a regular feature.
on the other hand, gold often has long lead times w.r.t. moves in the dollar, so that they can at times rise and fall together, sometimes for extended periods (see late '05 to mid '06).
ultimately, the jury is still out, but we're at a critical point here imo.
another positive feature worth mentioning is that pm stocks are relatively cheap here, both in terms of their ratio to gold, as well as p/e ratio-wise (the HUI components p/e ratio has declined by over 60% over the past year). this might invite some buying even if gold were to merely stay relatively stable around current levels (something similar has happened with crude oil and oil stocks over the past year or so).
no major shifts in the sentiment data have occurred - the XAU p/c OI has downshifted a bit, but otoh, the Rydex CF ratio has done the same. both are still within their recent ranges.
120 years of US house prices in real terms -- trotsky, 12:30:33 06/13/07 Wed
plotted on a roller-coaster. 'house prices always go up' they said. that just ain't so, as you will see:
video.google.com
JoeB -- trotsky, 00:02:37 06/13/07 Wed
just to avoid misunderstanding - the socionomic theory doesn't say that the bear market is causing the souring mood which in its wake causes the things like exclusion, aggression, war, etc., but that the souring social mood is causing all of it - including the bear market.
it's not really a scientific theory,as it has grown out of the e-wave theory. there is however by now a significant collection of empirical data that seem to support it. i'm drawn to it because i have always felt that the financial markets are not rational most of the time. rather, they are a measure of emotion and herding - essentially a mass-psychological phenomenon. certain cultural, political, economic etc. trends have always coincided with bull and bear markets respectively, which leads to the conclusion that they likely are a result of the same forces.
in any event, if this is correct, and the bear market resumes in full force, you won't have to worry much about being invaded anymore - you'll get to see some of the toughest immigration legislation ever being implemented.
mortgage CDS alert -- trotsky, 23:45:27 06/12/07 Tue
the ABX indices used as the basis for MBS credit default swaps have recently declined back to their late February lows - the bounce is officially over. after today's news on the enormous jump in foreclosures (up 19% month-on-month nationwide), i guess they will soon break those lows. every bad thing that could possibly happen is happening at once - not to forget, we have Schumer & co. up tomorrow as well, with their quest to make imports more expensive.
since inflation expectations actually remain low, all the talk (in the media) about inflation fears stoking the bond sell-off is probably misplaced.
it seems far more likely that the absence of foreign CB bidders at the bond auctions frus has described, as well as fears that protectionism will prolong and intensify said absence are behind the sell-off; there's also a technical aspect that is getting far too little air time - large holders of mortgage portfolios must adjust their durations, as higher bond yields lessen the chance of prepayments. this type of selling then tends to feed on itself - it is purely technical and has nothing to do with inflation expectations (not to forget, gold is trading about $90 below its nominal price high of 2006 - if the market were to truly fear inflation, gold's nominal price would be rising strongly).
since equities are still close to nominal price highs, domestic demand for bonds hasn't picked up yet to take up the slack. it will, in due time - the allocation pendulum has swung way too far toward risky assets.
i note also, in view of banks having over 60% of their assets in real estate related paper, the recent curve steepening opens up the way for them to reallocate toward the safer debtor, namely Uncle Sam.
a big shift in the risk/return equation is now underway. |
