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Andres Rueda

 
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  • Michael Harkins offers a quick lesson in duration, saying a buyer of the 10-year Treasury at 1.5% will get crushed with just a move back in yields to 2.5%. The bond market is a fabulous bubble, he says, growing in size as those who went short at the then impossibly low rate of 2.5% a year ago lack the conviction to do the same at 1.5%.  [View news story]
    Michael Harkins is of course correct. Folks who buy the 10-yr T bond at a yield of 1.48% (the current yield) can't do basic math. They will get creamed if interest rates climb just a tiny little bit. They're already getting creamed through inflation. Anyone can run hypothetical numbers with an Excel spreadsheet. And, for all that risk, they get paid a measly 1.48% per annum. Brilliant.
    Jul 31, 2012. 10:56 PM | 1 Like Like |Link to Comment
  • Contract Driller Ensco Triples Profit, Adds New Builds, Heading For S&P 500 [View article]
    I like ORIG and PACD in this space. Newer ships, huge contract backlogs, and cheaper than ESV, etc. ESV, RIG, and SDRL are however also solid investments.
    Jul 29, 2012. 05:42 PM | Likes Like |Link to Comment
  • Market recap: Stocks posted back-to-back rallies, with the Dow pushing past 13,000, after reports that ECB chief Mario Draghi would hold talks with the Bundesbank's Jens Weidmann. Earnings have been mixed at best, but bullishness on European progress has overwhelmed them. Crude oil climbed again; 10-year Treasury yields bounced to 1.55%. NYSE winners led losers three to one.  [View news story]
    10-year T bonds remain at a miniscule 1.54% yield, having moved this week 16 basis points from a head-scratching, absurdly low 1.38%. 1.54% is however not yet sustainable. The fear trade still has plenty of room to unwind. Only this week, we continued to see negative yields in Swiss government bonds, which are just the result of dumb, fearful people doing dumb things. There's simply too much money trapped in inflation-adjusted or even nominally negatively yielding bonds that will now rush into equities and other so-called "risky" assets. The central banks will now roast the shorts, and there will be plenty of short covering in the coming days. Many "risky" equities moved up 10%-20% on Friday, which is just wild. Never bet against the guys with the bigger gun. We're at the early legs of an equities rally (which will feed on itself for a few weeks), in my humble opinion.
    Jul 28, 2012. 04:28 PM | Likes Like |Link to Comment
  • 10-Year Treasuries Telling A Much Scarier Story Than Stocks [View article]
    Yields on the 10-yr bond of 1.44% make me lose faith in my fellow man. Do these folks who buy these bonds at these tiny yields understand that a bond is? That in the case of a 10-yr T-bond they are lending money for a 10 year term? That ten years is a long time, and that a lot can happen during a ten year period? That the price of a bond moves inversely with its yield? That at these low yields the mark to market value of the bond can crater if interest rates were to spike? That interest rates of 1.44% for the 10-yr bond are a historical aberration? That the historical range is between 4% and 6%? That in 1982 the yield on the 10-yr T-bond surged to in excess of 8%? That with a debt to GDP ratio approaching 100% the US federal government would be hard pressed to finance its debts at "historically normal" interest rates, leading to a default risk? That there is in fact a default risk to any sovereign debt? That there is an inflation risk as well? That the fed has been printing money and inflating its balance sheet like there is no tomorrow for at least 4 years now? That by purchasing these bonds at these ridiculously low yields you are making a bet that, during the bond's entire 10 year tem, interest rates will defy (1) historical norms, (2) the fed's inflation target of 2%, and (3) nominal inflation as measured by the Labor Department, which is currently in the range of 2% to 3% (excluding inputs such as food and energy)? That the buyer of these bonds is not being adequately for these risks? That long bonds are anything but "risk-free", but in fact highly speculative investments? That, taking inflation into account, there is a built-in loss on any purchase of these bonds at current yield levels? That a 10-yr period is far more than a lousy quarterly retail figure or a single employment reading?
    Jul 16, 2012. 11:37 PM | Likes Like |Link to Comment
  • The Justice Department is building criminal cases against a number of banks and their employees, including Barclays (BCS), for their role in the manipulation of Libor rates, the NYT reports. Authorities expect to make indictments against at least one bank by the end of 2012, although several firms are looking to arrange deals.  [View news story]
    It is downright bizarre that not even a whiff of criminal prosecutions has come out of MF Global, where Corzine & Co. brazenly stole customer funds. And we're supposed to get worked up about Libor? One thing at a time...
    Jul 15, 2012. 06:54 PM | 3 Likes Like |Link to Comment
  • How JPMorgan Just Lost A Huge Source Of Profits, Now A Terrible Investment [View article]
    You can disagree all you want, but the last time I checked the ticker for JPM, BAC, etc., the ticker quoted a bid-ask price and not a "value" (whatever that is).
    Jul 14, 2012. 04:14 PM | 2 Likes Like |Link to Comment
  • How JPMorgan Just Lost A Huge Source Of Profits, Now A Terrible Investment [View article]
    From the article... "Investing in JPMorgan, Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), Morgan Stanley (MS), or the like is simply irresponsible."

    This statement is just stupid (sorry). Whether an investment is good or bad comes down to price. At current price levels, and given that 10-yr T-bonds (ie., the "non-irresponsible" (wink, wink) asset class) are at an astonishingly low 1.49% yield, shares in these banks are pretty cheap in my humble opinion.
    Jul 14, 2012. 03:51 PM | 6 Likes Like |Link to Comment
  • How JPMorgan Just Lost A Huge Source Of Profits, Now A Terrible Investment [View article]
    I tend to tune out when an author starts with the mumbo jumbo about the "macroeconomy". Having said that, the article does glean some interesting information from JPM's income statement.

    Ha, ha. If JPM did not panic and left its CDS deals in place, these could just as well turn around and go massively into the money. As is, the bank seems to be having problems winding these down.
    Jul 14, 2012. 03:42 PM | 3 Likes Like |Link to Comment
  • Yield Curve Review: 2 Weeks Ending July 13th: Fear Bid Returned? [View article]
    I think the T-bonds pretty much hit a bottom this week in terms of yield. The panic trade is pretty much spent, as witnessed by the large Friday the 13th equities rally. T-bonds have large built-in losses at current prices, and there's really no room left for a downward move in yields. T-bonds don't compensate the holder for inflation, not to speak of the time value of money. Investors should stick to the short-end of the curve if they want or need to be in the T-bond market at all. The long-end has massive interest rate/default risks that are difficult to avoid. Could the US federal government support the same interest rate that it paid in 1982? Probably not. Is it inconceivable that that interest rate or even higher interest rates could occur within the 10 to 30 yr term of a long bond? Not at all. In fact, given ultra loose monetary policies today, it is quite likely. If I held long T-bonds, I would dump them (not much yield or potential for capital appreciation left) and move into high quality equities (which generally have a higher dividend yield, are more inflation/interest rate hike resistant, and provide for potential capital appreciation.)
    Jul 14, 2012. 12:49 PM | Likes Like |Link to Comment
  • 4 Undervalued Stocks With Yields Up To 11% [View article]
    Another two great European companies that investors should consider at current dirt cheap price levels would include Santander (SAN) (a global banking conglomerate based in Spain but with diversified revenues and operations) and Total (TOT) (an energy giant). At current yield and earning levels, shares in these two companies are also undervalued by any metric.
    Jul 8, 2012. 01:48 PM | 2 Likes Like |Link to Comment
  • June Nonfarm Payrolls: +80K vs. consensus +100K, prior +77K (revised from 69K). Unemployment rate 8.2% vs. consensus 8.2%, 8.2% previous.  [View news story]
    Very perceptive post. Those who remain in cash, dump their equities in an orgy of fear at every slight disappointment, or go to US bonds at current prices will be licking their wounds. Who buys a US 10-yr at 1.54% per annum, Friday's close? This price is not sustainable in the long run, as anybody who buys has a built-in loss after accounting for inflation and faces a continuing risk from interest rate volatility. It just doesn't make sense to buy at these prices, even if corporate profits were to disappoint. There is also no clear indication that they will disappoint. Just fear-induced agony about the mere possibility.
    Jul 7, 2012. 02:51 PM | 2 Likes Like |Link to Comment
  • June Nonfarm Payrolls: +80K vs. consensus +100K, prior +77K (revised from 69K). Unemployment rate 8.2% vs. consensus 8.2%, 8.2% previous.  [View news story]
    The economy has changed. Employers make do with less workers. It's called increased productivity. Anybody who works at an office or factory knows that you can make do with far less people, and that particularly the less skilled are not really needed in the same numbers as before. Many people are also no longer needed because they are uncompetitive at current wage costs with offshore workers. That is a structural change in the US economy. In light of this harsh reality, the job numbers are not bad, the market's hysterical reaction notwithstanding.
    Jul 7, 2012. 02:31 PM | 2 Likes Like |Link to Comment
  • German legislators and a democracy group file lawsuits in a constitutional court seeking to challenge the country participation in the eurozone's ESM bailout fund and the fiscal compact, laws for which were approved on Friday (I, II). President Joachim Gauck has said he would delay passage of the measure pending any lawsuits.  [View news story]
    I don't understand what the Germans are complaining about. They were/are the main beneficiaries of the so-called "crisis", even though their stock market tanked. Fear-driven investors were lending the German government at yields that are just RIDICULOUS. At one point, their 10-yrs dropped to 1.16%. Investors who were stupid enough to lend for 10 yrs at that rate got clobbered when the German 10-yr climbed to the current 1.58%, which is still very low. This is in any event a huge subsidy to the German government, at the expense largely of the Italians and the Spanish.
    Jul 1, 2012. 02:10 PM | 1 Like Like |Link to Comment
  • DryShips: Ready To Sail Higher This Summer [View article]
    I like your phrase "never short a dull market." Panicky investors don't pay attention to fundamentals. They don't look at book values, debt repayment schedules, etc. They are headline-driven, whether or not those headlines are likely to have any impact at all on a specific company's bottom line.

    Headlines coming out CNN can have more of an impact on a company's stock price than earnings announcements and other company releases, which few people seem to read anyways. I remember when the price of SDRL got clobbered during the Macondo oil spill, even though SDRL was not involved and did not have a single drillship in the Gulf. Once folks stopped talking about the oil spill, the price of SDRL almost doubled. That is just one example.

    Once the euro "crisis" headlines dissipate and get replaced by cheerful headlines coming out of the Olympics, we should see a rally. A lot of money is locked up in long-dated treasuries, and some of this money will likely flow back into the market over the course of the summer because 1) that is what the central banks want (never bet against the fed!!!) and 2) it makes no economic sense for an investor to purchase or hold long-dated treasuries at current yields.
    Jul 1, 2012. 01:38 PM | Likes Like |Link to Comment
  • A massive (9.2% and counting) rally in WTI crude has erased in one day the entirety of June's decline. Talk about due for a bounce - in the 8 weeks prior to today, oil had fallen in nearly a straight line from $106/barrel to $78. Brent crude's (BNO) a slacker, up just 7%. (see also)  [View news story]
    No, I think it had more to do with short covering by the fear trade. Some people just never learn. Don't bet against the world's central banks. That's like holding the proverbial finger against a dike. Don't dump commodities and equities in favor of long-dated treasuries when every single central banker (as well as common sense) is telling you it is not a good idea.
    Jun 30, 2012. 01:39 PM | Likes Like |Link to Comment
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