CNBC: Harvard University's Martin Feldstein discusses how the Fed's policy has created a "bubble" in the long-term bond market and investors have been losing money as the market has come to "adjust" to it. … [Read more...]
Archives for June 2013
Bond Market Takes a Hit
The yield on 10-year Greek bonds were 10% last week. That’s 2% points higher than they were on May 22. Remember, bond prices fall when interest rates rise. Bond price sensitivity is measured by duration. As a general rule of thumb for every 1% increase in rates the principal value drops in percentage terms by the duration. For example, a 1% increase in interest rates would be about a 10% loss in value on a 10-year zero coupon bond. That’s how rate volatility is wreaking havoc on Greek bond investors. … [Read more...]
What We’re Reading 6-14-13
A roundup of articles we found interesting this week. Nigerian cook survives 2 days under sea in shipwreck air bubble, Joe Brock, The Globe and Mail Quantitative Quicksand, Alan Meltzer, Project Syndicate Can Bernanke Avoid a Meltdown in the Bond Market?, Jim O’Neill, Bloomberg Are Americans Saving Too Much or Too Little?, Matthew C. Klein, Bloomberg The Fed has turned markets upside down, David Rosenberg, Financial Times World has 10 years of shale oil, reports US, Gregory Meyer, Financial Times For Anyone Who Still Thinks Earnings Matter, Tyler Durden, … [Read more...]
United States vs. the World
During the collapse of 2008 and through the rebound of 2009 U.S. markets and foreign markets closely tracked one another. But toward the end of 2009, and more so ever since, the U.S. has diverged from world markets. While the rest of the world has developed a very flat look, the S&P 500 has reached new highs. Whether or not this is the effect of the Federal Reserve debasing the world’s reserve currency, it leaves a big question mark as to what to expect from second quarter earnings at U.S. multinationals. In 2011 (latest data available), 46.1% of S&P 500 sales came from outside … [Read more...]
The Emperor Has No Clothes: Markets Abandon the Fed
It would seem that the emperor has no clothes. In the last few weeks, markets have begun to act as though they no longer think the Fed’s strategy is credible. Same goes with the world’s other interventionist central banks. [expand title="Click here to read more."] The sole purpose of global central bank monetary policy in the last five years has been to keep rates low. The theory goes that low rates will encourage borrowing, which will encourage spending and that, in turn will strengthen the economy. The big problem? It hasn’t worked yet, and it appears that market participants may be … [Read more...]
Prices Down, Interest Rates Up
Yesterday the price for the 10-year Treasury note ticked down 15/32 to yield 2.212% while the 30-year fell 25/32 to yield 3.367%. Investors reaching out on the yield curve should not be surprised by this downward price action. The Treasury market paid no attention to Standard & Poor’s upward revision, to stable, for the U.S. credit rating. I’d stay away from Treasuries altogether. As Carolyn Cui at The Wall Street Journal reports: [expand title="Click here to read more."] Treasuries held losses despite Standard & Poor's move to raise its outlook on the U.S. credit rating, as the … [Read more...]
What We’re Reading 6-7-13
A roundup of articles we found interesting this week. [expand title="Click here to read more."] Can the Fed Make Up Its Mind on QE?, Caroline Baum, Bloomberg Quant hedge funds hit by US bonds sell-off, Sam Jones, Financial Times Printing Out Barbies and Ford Cylinders, Clint Boulton, The Wall Street Journal Poll: What is the Primary Cause of Speculative Investment Bubbles?, David Larrabee, Enterprising Investor Fed's Fisher: We Cannot Live in Fear of 'Monetary Cocaine', CNBC How Teachers Unions Make The Best People Want To Quit Teaching, Josh Barro, Business Insider One … [Read more...]
The Fed Sends Mixed Signals
Caroline Baum at Bloomberg explains the Fed's fuzzy messaging on the future of QE. [expand title="Click here to read more."] First Baum lays waste the idea that the Fed can use predictive models as the basis for sound monetary policy. At his March 20 press conference, Fed chief Ben Bernanke said “it makes more sense to have our policy variable,” with purchases that respond to changes in the outlook. To him, perhaps. If I understand Bernanke, he is saying that every six weeks policy makers will examine an array of leading, coincident and lagging indicators, most of which are revised … [Read more...]
Beware Air Pockets!
If you’re going to chase bubbles, you had better watch out for air pockets! By May 22nd the Nikkei 225 was up more than 50% for 2013. Speculators and gamblers who believed in the hype have received an unfortunate reality check in the days since. In only ten days, the Nikkei is down a punishing 17%. [expand title="Click here to read more."] You can see on the chart below that volume (the bar chart) of trading in the WisdomTree Japan Hedged Equity Fund (the vehicle of choice for speculators) really began to pick up in April. Today, only two short months later most of the folk who … [Read more...]
Billionaire Bond King Bill Gross Slams Ben Bernanke
Bill Gross is out with a scathing new Investment Outlook on Dr. Bernanke’s misguided monetary activism. [expand title="Click here to read more."] Below are the highlights. You can read the letter in its entirety here. Central banks – including today’s superquant, Kuroda, leading the Bank of Japan – seem to believe that higher and higher asset prices produced necessarily by more and more QE check writing will inevitably stimulate real economic growth via the spillover wealth effect into consumption and real investment. That theory requires challenge if only because it doesn’t seem to be … [Read more...]