Technically Speaking
by Bradley J. Fluetsch, CFA
Created With Quick Blogcast
Technically Speaking
Reality Check!
First, let's get real about Facebook's valuation. Yes it has lots of users, but if you don't get it at the IPO price and chase it you will be one of their many losers.
Second, JP Morgan. OMG! $2 billion is less than two tenths of one percent of their balance sheet, imagine the losses they are going to incur when the US goes back into BO's recession. I understand numbers confuse people, and big numbers scare people, but you wouldn't expect Treasury Secretary Timmy G doesn't grasp the totality of JPMorgan's position. So either he is incredibly stupid or is playing politics over an inconsequential trade.
Lastly,
There is going to be a buying opportunity in the future, but not in the near future.
Second, JP Morgan. OMG! $2 billion is less than two tenths of one percent of their balance sheet, imagine the losses they are going to incur when the US goes back into BO's recession. I understand numbers confuse people, and big numbers scare people, but you wouldn't expect Treasury Secretary Timmy G doesn't grasp the totality of JPMorgan's position. So either he is incredibly stupid or is playing politics over an inconsequential trade.
Lastly,
There is going to be a buying opportunity in the future, but not in the near future.
Please, just a little cheaper!
Yes, I love Cisco Systems (CSCO) and I really appreciate those of you who sold it off. Now, please just sell it off some more so I can make my entry into this well run, visionary company!
No, I am waiting for it in the low $15 dollar range to make my entry, but I hope that I am not looking a gift horse in the mouth.
No, I am waiting for it in the low $15 dollar range to make my entry, but I hope that I am not looking a gift horse in the mouth.
Bonds are not safe to flee too!
So you have concerns about the equity market and want to reduce portfolio risk, don't run to the bond market! Take a look at how a variety of bond types have performed for the last two years.
The Federal Reserves "Operation Twist" is pretty easy to spot driving TLT to excessive returns in August to September 2011. Just as obvious as the Fed's action is reflected in the market, so is smart money's move out of long maturity Treasuries. IEF, which represents the intermediate maturities of the Treasury market is the second best performing sector but has been flat since the August 2011 rally.
In fact, the Fed's manipulation of the bond market back in August 2011 skews all return data that extends beyond August. So take a look at this six month chart and notice bonds are really going no where.
The only bullet the Fed has left is to print money and that leads to inflation. If you own long bonds of any kind, dump them now. If you want yield, look to high quality utility stocks and real estate. If you want to protect your purchasing power, own TIP and WIP.
Bonds with long maturities will do more long-term damage to your net worth than any other asset class investors can hold. While short-term bonds (less than three years) might not yield much today, at least they will not blow your savings up. Cash is not a bad place to invest at the moment. No you will not earn anything, but you won't lose anything either. If you do hold cash, consider holding it in currencies other than the U.S. Dollar.
The Federal Reserves "Operation Twist" is pretty easy to spot driving TLT to excessive returns in August to September 2011. Just as obvious as the Fed's action is reflected in the market, so is smart money's move out of long maturity Treasuries. IEF, which represents the intermediate maturities of the Treasury market is the second best performing sector but has been flat since the August 2011 rally.
In fact, the Fed's manipulation of the bond market back in August 2011 skews all return data that extends beyond August. So take a look at this six month chart and notice bonds are really going no where.
The only bullet the Fed has left is to print money and that leads to inflation. If you own long bonds of any kind, dump them now. If you want yield, look to high quality utility stocks and real estate. If you want to protect your purchasing power, own TIP and WIP.
Bonds with long maturities will do more long-term damage to your net worth than any other asset class investors can hold. While short-term bonds (less than three years) might not yield much today, at least they will not blow your savings up. Cash is not a bad place to invest at the moment. No you will not earn anything, but you won't lose anything either. If you do hold cash, consider holding it in currencies other than the U.S. Dollar.
On que, equities rolling over
When a broad equity index 50 day moving average initiate a negative slope it is time to review your exposure to that index. When virtually every major, broad based equity index initiates a negative slope on the 50 day moving average it is time to wake up and review your total equity exposure.
So the chart above shows small caps 50 day moving average rolling over and take my word for it, so is the mid cap index. SPY's 50 day moving average is approaching flat and has not turn negative yet, but read on because I think you will be convinced the question is not if, but when.
The chart below compares Germany EWG, Europe VGK, and EFA. What strikes me about this three year chart is that it looks as if we are putting in the right shoulder of a classic head and shoulders pattern and the 50 day moving average has rolled over to a negative slope.
It is not one thing that has me concerned about being long equities, but a portfolio of problems.
So the chart above shows small caps 50 day moving average rolling over and take my word for it, so is the mid cap index. SPY's 50 day moving average is approaching flat and has not turn negative yet, but read on because I think you will be convinced the question is not if, but when.
The chart below compares Germany EWG, Europe VGK, and EFA. What strikes me about this three year chart is that it looks as if we are putting in the right shoulder of a classic head and shoulders pattern and the 50 day moving average has rolled over to a negative slope.
It is not one thing that has me concerned about being long equities, but a portfolio of problems.
- France could easily drag Europe into a double dip of all double dip recessions
- Failure of Europeans to address, excessive public sector spending, taxes, debt
- Israel - Iran
- United States election
- Current market levels and variance from 200 day moving average
- Slowing US economic recovery
- US lack of fiscal plan, debt and condition of state and municipal tax receipts
- Investors made a boat load of cash in the first quarter and looking to take profits
- Number of one plus percentage change days
- Lastly, May is only six days away.
SPY retreat coming
I actually think the economy and therefore the market are reasonably healthy and improving. I only bring to your attention that the current price of the SPY is significantly higher than the 200 moving average and such divergences always reverse! Usually with the current price falling back to the 200 moving average.
I would use such pull back as a opportunity to bring asset allocations to full equity exposure, even over-weight the equity portfolio. Personally, I would over-weight high beta asset classes such as Small Cap and Emerging Markets.
I would use such pull back as a opportunity to bring asset allocations to full equity exposure, even over-weight the equity portfolio. Personally, I would over-weight high beta asset classes such as Small Cap and Emerging Markets.
Operation Twist blows-up Fed Balance Sheet
Some of us who understand fixed income understood that "Operation Twist" was not a riskless transaction. While the Federal Reserves Balance may not have expanded in dollar terms, the level of risk was dramatically increased. In the profession we call it duration and when interest rates rise, duration is a killer for fixed income with long maturities.
SHY is the Barclays US Treasury Index with maturities between 1-3 years
IEF is the Barclays US Treasury Index with maturities between 3-10 years
TLT is the Barclays US Treasury Index ETF with maturities 20+ years
So when the Fed sold its US Treasuries with short-term maturities in order to purchase US Treasuries with long-term maturities they added a significant amount of interest rate risk. The following chart demonstrates the level of loss the Fed's balance sheet has incurred in the past couple of weeks and it is only going to get worse.
The moral of the story, the Feds short-term maturities would have a minor loss, but their long maturities are down about eight percent year to date. On a $3 Trillion balance sheet, that is a HUGE LOSS!
Great job Ben!
SHY is the Barclays US Treasury Index with maturities between 1-3 years
IEF is the Barclays US Treasury Index with maturities between 3-10 years
TLT is the Barclays US Treasury Index ETF with maturities 20+ years
So when the Fed sold its US Treasuries with short-term maturities in order to purchase US Treasuries with long-term maturities they added a significant amount of interest rate risk. The following chart demonstrates the level of loss the Fed's balance sheet has incurred in the past couple of weeks and it is only going to get worse.
The moral of the story, the Feds short-term maturities would have a minor loss, but their long maturities are down about eight percent year to date. On a $3 Trillion balance sheet, that is a HUGE LOSS!
Great job Ben!
Emerging markets get GREEN light!
Today on Surveillance Midday Pimco's Lupin Rahman recommend Latin America as the best place for emerging markets. I wanted too take a look at ILF against EEM and FXI. What is really scary is that for the past year, the correlation is nearly one with no divergence between these markets. The best news is that the all three recently experienced a "Golden Cross" where the 50 day moving average breaks above the 200 day moving average. GREEN light on Emerging markets!
Santorum blow-up
America dodges nutcase bullet in Michigan!
Well thank GOD that Santorum blew himself up by seeking liberal Democrat votes and the market will signal all is Green!
With Romney's win in both Arizona and Michigan it seems that he will be the Republican candidate and will blow the Obamanation out of the water come this fall! Markets will rally now that the radical religious zealots have been exterminated from the Republican primary. Look for similar market performance as it was in 1979-1980 when the country realized that the peanut farmer was about to be retired and someone else will be calling the shots!
If fact, Santorum sounds like he wants to be VP. Romney, just say no!
Well thank GOD that Santorum blew himself up by seeking liberal Democrat votes and the market will signal all is Green!
With Romney's win in both Arizona and Michigan it seems that he will be the Republican candidate and will blow the Obamanation out of the water come this fall! Markets will rally now that the radical religious zealots have been exterminated from the Republican primary. Look for similar market performance as it was in 1979-1980 when the country realized that the peanut farmer was about to be retired and someone else will be calling the shots!
If fact, Santorum sounds like he wants to be VP. Romney, just say no!
Santorum sell-off
The Republican race looked pretty much wrapped up with Romney as the candidate. The recent surge by Rick Santorum as caused the markets to go flat for most of February.
Two points I would like to make.
First is that Small and Mid Cap stocks are just now catching up to Large Cap stocks, so take advantage of any sell off by buying beta.
The economy is stabilizing, China is easing, domestic employment is expanding all good signs that gives this investor the confidence that the markets have healed their worst structural problems. Can the recent trends be disrupted, ABSOLUTELY and while many figure it will be Iran or North Korea, I think it will be here in the good ole US of A.
I call it the Santorum Sell Off! The markets where comfortable with Romney as the Republican candidate. He has the right mix of elected leadership skills but also understands the private sector. The markets are not made up of conservative voters, it is made up of a broad section of society and the one thing that scares market participants the most are excessively conservative candidates who are more about managing the public's personal life than managing defense, transportation and the wasteful Federal spending.
As Santorum gains the markets will lose. Why? Because with Santorum as the Republican nominee, it almost assure four more years of President Obama. America does not want a elected people telling them how to live, what is good/bad, or how their personal relationships should be. The American electorate is mostly moderate and does appreciate those who don't respect a fundamental saying "Don't Tread on ME".
The next month will determine if this current thesis is correct or not, but if it is, use it as a buying opportunity, buy Beta, because in the long run, Republicans can tolerate a moderate candidate, but America cannot - will not tolerate a conservative one.
Two points I would like to make.
First is that Small and Mid Cap stocks are just now catching up to Large Cap stocks, so take advantage of any sell off by buying beta.
The economy is stabilizing, China is easing, domestic employment is expanding all good signs that gives this investor the confidence that the markets have healed their worst structural problems. Can the recent trends be disrupted, ABSOLUTELY and while many figure it will be Iran or North Korea, I think it will be here in the good ole US of A.
I call it the Santorum Sell Off! The markets where comfortable with Romney as the Republican candidate. He has the right mix of elected leadership skills but also understands the private sector. The markets are not made up of conservative voters, it is made up of a broad section of society and the one thing that scares market participants the most are excessively conservative candidates who are more about managing the public's personal life than managing defense, transportation and the wasteful Federal spending.
As Santorum gains the markets will lose. Why? Because with Santorum as the Republican nominee, it almost assure four more years of President Obama. America does not want a elected people telling them how to live, what is good/bad, or how their personal relationships should be. The American electorate is mostly moderate and does appreciate those who don't respect a fundamental saying "Don't Tread on ME".
The next month will determine if this current thesis is correct or not, but if it is, use it as a buying opportunity, buy Beta, because in the long run, Republicans can tolerate a moderate candidate, but America cannot - will not tolerate a conservative one.
Short GNCMA
It is not often, if fact I have never recommended shorting an individual company but General Communications of Alaska is such an abusive company of its clients, I recommend shorting this company. Its ticker symbol is GNCMA and I expect its value to fall by 50 percent in the short-term. This company exhibits the worst ethics and abuses it customers. Get out of this loser now!