The debt crisis that started in Greece and is now engulfing Europe has acted as a catalyst for a sell-off in global risk assets. Investors are liquidating stocks, risky bonds, and commodities and loading up on U.S. Treasury bonds. The 30-year Treasury yield has fallen from a high of 4.84% in early April to a low of 4.05% earlier this week. If you own long Treasury bonds, you have just been given an opportunity to liquidate your position before prices collapse. And collapse they will. Investors are flocking to long Treasury bonds because they perceive them to be risk-free. That’s a farce. … [Read more...]
Archives for May 2010
The European Crisis Crusade
Treasury Secretary Geithner is on a crusade to prevent the debt crisis in Europe from spinning out of control. The Wall Street Journal reports that Mr. Geithner is chiding European leaders on their crisis response. He apparently believes he has a better strategy for Europe. Geithner wants Europe to pile on more debt to solve a debt crisis and conduct bank stress tests. Can you believe the nerve of this guy? This is the same Treasury secretary who, 16 months ago, exacerbated the financial panic with a disastrous communication strategy and half-baked policy prescriptions. Mr. Geithner came … [Read more...]
The Bear Market in Pork
The PIIGS are deep in bear market territory, falling more than 37% since October of 2009. Our chart shows a break through key support, indicating that a drop to the March 2009 low now seems possible. … [Read more...]
A 500% Return in High-Yielders
Do you invest in master limited partnerships (MLPs)? MLPs are publicly traded limited partnerships. They combine the tax benefits of a limited partnership with the liquidity of a publicly traded security. MLPs pay no entity-level tax. They are pass-through entities. MLP unit holders are allocated a proportionate share of the revenue and expenses of the partnership. Most of the publicly traded partnerships in the U.S. are in the energy transportation and storage business. These are the companies that own the pipelines and storage terminals that move oil and gas from the oil fields to the … [Read more...]
The #1 Investment in the World
You may recently have read the outstanding, in-depth article from Sports Illustrated “Sports Genes,” by David Epstein, who points out that “good genes” don’t necessarily equate to athletic success. Take Ethiopian runner Haile Gebrselassie, the world-record holder in the marathon and perhaps the greatest distance runner ever, who, at age five, ran six miles each way to school because that’s how you got to school in Ethiopia. “Every day is running. Every job is running: working in the fields or just getting somewhere. Life is running,” says Gebrselassie. Just as Gebrselassie wasn’t born a … [Read more...]
Doctor Copper’s Bad Diagnosis
PhD. Copper points to weakening global economic growth. A break below the support line would likely signal a quickening in the pace of decline. Stay tuned into the price action in copper futures. … [Read more...]
90% of Bankruptcy Lawyers Believe A U.S. City Will Fail
Survey Shows Risk of U.S. Municipal Defaults - Nicole Bullock, Financial Times “Some 90 per cent of the 91 bankruptcy lawyers, bankers, fund managers and other turnaround specialists polled earlier this month predicted a US city would default in 2010 or 2011, versus 63 per cent who expected the default of a country in the same time period.” How to Beat the Bond Market – Brett Arends, Wall Street Journal “In your day-to-day life you wouldn't keep lending more money to the people who had already borrowed the most. But that is probably what the manager of your bond fund is doing with your … [Read more...]
Avoid Financial Ruin
Did you know that the S&P 500 is down 5% since year-end 1999? That’s not just price; I’m including dividends here. What an atrocious return. And for the privilege of losing 5% of your capital, you’d have had to endure two of the most severe bear markets in history with peak-to-trough declines of 50% or more. Investors who retired at year-end 1999, at the height of the tech bubble, undoubtedly had too much invested in the stock market. The weekly asset allocation survey conducted by the American Association of Individual Investors showed that in January of 2000, investors were putting … [Read more...]
A Valuable Lesson
If you have been following the Securities and Exchange Commission (SEC) civil suit against Goldman Sachs, you know the SEC is suing the firm for underwriting and selling a synthetic collateralized debt obligation (CDO) without disclosing to the buyers that a hedge fund taking a short position in the deal helped select the securities referenced in the CDO. The SEC is focused on whether or not Goldman made misrepresentations to the buyers. Whether or not the allegations against Goldman are true, there is a valuable lesson here for investors. The counterparties in the Goldman synthetic CDO deal … [Read more...]
A New All-Time High
A $1 trillion dollar bailout of overly indebted euro-area governments has helped push gold to a new all-time high. The bailout in Europe greatly diminishes the credibility of the European Central Bank and the euro. Investors are rightfully fed up with paper money. The only credible alternative to paper money is of course gold. How much gold do you own? … [Read more...]