Category Archives: Bonds
Danger Passing For Now, Or So It Seems
I have to hand it to the EU countries. We are now years into this crisis, and still they manage to keep their bonds funded. Spanish bonds are easing back down from the 5% mark that had me on my toes. It would appear that the flare up has been contained…for now.
But that’s not the name of this game. They can save themselves as many times as they like. It would be better to ask, “what are the odds they save themselves every time one of these crises kicks up.” Much like a kid juggling eggs in his mom’s kitchen, the prudent bet is that he drops them. The moments leading up to the inevitable wrath bearing down on him are of entertainment value only.
Gasoline prices are imploding. That is merely a factual statement. I can’t decide what to think about it yet. Lower gasoline prices are inherently good for the consumer, it is true. But following the economic reports we’ve been receiving, and right out of Christmas and the optimistic projection parties that come with that time of year, and I’m not entirely sure of the thing being good.
My preference remains withdrawn defensiveness. Lots of cash, hand picked hedges. And only names of quality that I don’t mind being left holding without a bid.
Selloff Will Prolong A Week Or Two, Then We Go Higher
So far, taking a check at the state of affairs, I still think we can turn back around. Look at the sheer price run and know that we are only now approaching what could be called “top of the range”. I cannot become concerned by bond prices, as they remain at all-time lows and, thanks to central banks, are not allowed to sell off significantly anyway. Why shouldn’t bonds go up? (I know, that logic cannot hold, but for the moment it’s a sticky sort of rule of thumb). Bonds selling off hard are a cause for concern. Bonds being bought are a given.
But I am most assuredly fixed on the yields of France, Italy, Spain and Greece. Yesterday, Italy managed to eradicate three months of goodwill for themselves and their neighbors in what amounts to sheer idiocy. Italians obviously don’t understand the concept of a Catch 22 – in this case, they can pick between austerity or being left for dead (a compelling choice, I know).
Italian 10 years are now approaching the 5% level; effectively lifting ~1% in a matter of two days. While that is certainly a warning sign, I wish to see if that price can hold.
Also, remember that France is intricately tied up in all of this. If we were getting ready for a true panic, I would expect France yields to be getting murdered here.
I’m also not sure what I think of the EURUSD. It’s sitting at around 1.3, which has really been a sort of center for the currency swap during the last 2-3 years. Any time there’s trouble or rebound, it seems like we make the decision around 1.3.
If we were ready to crater, part of me thinks we’d be seeing a bigger initial euro rally, as European financials stock up on emergency stores of euros. Yet, we certainly have had a large resurgence of the EURUSD off the lows, and perhaps that was driven by European financials as much as anything, gathering that very same I have just described.
Also, even though I suspect demand for currency would create a spike before any major selloff, ultimately the euro is destined to go lower, either through devaluation necessary to hold the EU together, or its abstract worthlessness when the EU begins to come apart.
In any major event I expect the euro to move sharply and with conviction. The sashaying it’s undergoing at the moment makes me think this selloff will pass with time.
Until I’m more confident of that though, I’ll be keeping a wary eye on bonds and currencies.
A Quick Thought On The Treasury Divergence
Most Excellent
Needless to say, I decided to edge long at exactly the wrong time. Ben suckered me in, and my once strong 30% cash position has been whittled away to a mere 10%.
This selloff is going to hurt, delivering its full force directly against the 9th floor, shaking the very walls.
But I find that I am willing to wait it out. The concerns that are driving this selloff are immaterial.
Spanish insolvency, fiscal cliffs, Chinese communists and Ben’s retirement – the four horsemen are dotting the sky and Twitter is like a dumping ground for snarky comments.
Earnings and growth are slowing and Bob Pisani is nowhere to be found.
The funny thing is I was sitting around in exactly the position of the bears this time last year, guffawing in between comments of doom and chugging from a golden chalice.
Let me tell you how this ends for the shorts.
First, they get run over by a stampeding flock of turkey’s. Seasonality adjustments and earnings projections tick up with bad modeling methods. A bottom in housing prices is called for the spring. Employment looks extra rosy with the holiday shopping.
Then Santa comes and mows the surviving shorts down with his sleigh.
This is how the holiday season works.
Let’s review the “impending demise” of civilization. Spanish insolvency can be flooded with EU money. The EU collapse comes from price inflation and manufacturing contraction, not outright defaults. Chinese communists are scary but China can’t exactly afford to have foreign investment flee the country at this precise moment. The fiscal cliff can be voted away.
And after his presidential inauguration, Mitt Romney is going to be ushered into a back room where central bankers will begin the process of extorting him. But even if they fail, Ben has plenty of time to sink so much money into dark pools there’s no chance of reversing his policies.
Why do we need to embrace the end of humanity right now? It’s the holidays. Can’t it wait until next June?
So Dramatic
As the market is off a whopping fraction of a percent, commentators are literally soiling themselves on live television, trying to time the next selloff.
Oil reversed yesterday – to a flurry of publications informing us that the move higher is over with.
Bond analysts are flipping out about Europe.
Romney made some comment most everyone I hang out with agrees with – half of all American’s are lazy tits with zero self-worth – and now a few ancient and withered CNN “journalists” are creaming their pants insisting Obama now somehow has this election in the bag.
And China is thinking of crushing Japan because of some island that might have oil rights.
Folks, this is obviously a drama day. I’m checking my brain out.
Do you understand insignificant this selloff is?
Do you get how high all commodities ramped over the last three weeks as the QE announcement was obviously leaked?
Do you see that European bond yields are still lower than they’ve been all year?
Do you understand that CNN journalists all dorm together in a crawl space and haven’t made a correct prediction in the last 15 years? That the polls coming out have fluctuated consistently by 3% or more, leaving Obama and Romney (the guy supposedly nobody likes) in a virtual tie?
Do you get that Japan has nukes too?
Seriously, this is ridiculous. I’m closing the 9th floor for business early today. My things are packed. I’m closing the door behind me – the lights are flipped off as my hand slides quickly out before the latch locks tight.
Today is just too stupid to get involved with. I’ll see you tomorrow.
Talk About Mixed Signals
With the bond market showing US treasury yields cratering, down more than 2%, you would think we were about to enter the black hole. Yet, the $EURUSD continues to push higher, creating a weaker dollar.
China is imploding – still. Europe is imploding – still. The US is stagnating.
Commodities are running. But stocks are dropping.
This is a maddening market. Staring out my 9th floor window, I have half a mind to fling my chair through it. The passerby’s below would be so shocked, they might stop buying bonds and oil at the same time.
But probably not.
