In my October 2012 article, "There Be Dragons: Navigating Bond Allocation Through Seas Of Rising Interest Rates," I argued in part that spread tightening in credit asset classes like corporate bonds, municipals and mortgages could cushion the blow of future rising treasury yields, pointing out municipal bonds and corporate bonds, both high yield and investment grade, as having the most potential to tighten.

Since then, as the 10-year Treasury yield has risen from 1.64% on September 26th, 2012, to 2.03% on March 12th, 2013, spreads have by-and-large done just that, tightening and cushioning the blow of rising yields. The chart below shows the performance of the iShares Barclays 7-10 Year Treasury Bond ETF (IEF), as well as various iShares bond sector ETFs, since September 26th, 2012.

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While every ETF other than the iShares iBoxx High Yield Corporate Bond ETF (HYG) experienced a negative total return

If you have less than perfect credit and have bought a car in the last 20 years, you may have had a loan with Credit Acceptance Corporation (CACC), one of the largest providers of sub-prime auto finance to independent auto dealerships in the nation.

Credit Acceptance, whose mission is to "...help change the lives of consumers who do not qualify for conventional automobile financing by helping them obtain quality transportation...," was formed in the early 1970s as a captive finance company for used car dealerships owned by Donald Foss, its current Chairman. In the 1980s, Credit Acceptance began making its financing programs available to non-affiliated dealerships and, since 2002, has more than quintupled its dealership distribution network from 789 dealers to over 5,300 deals as of the end of 2012, or roughly 10% of the market according to CACC's most recent earnings conference call.

Best Company Ever? Not

On February 28th, the Bureau of Economic Analysis revised upwards its previous estimate of Q4 2012 Real GDP growth in the U.S. to a seasonally adjusted annual rate of 0.1% from -0.1%. This was still below expectations of 0.5% growth, but that did not stop a flurry of articles from declaring that the components of the report that actually counted were showing strength, and that the trend in the economy was pointing up in coming quarters.

Reuters' headline related to the GDP report read, "Economy Barely Grew In Fourth Quarter, Brighter Days Ahead", arguing that strength in personal consumption, which added 1.47 percentage points to GDP, and private fixed investment (+1.36 pct pts) could allow us to ignore a rogue's gallery of other components, such as a plunge in government spending (-1.38 pct pts) and a drop in exports (-0.55 pct pts). In the odd logic of

In several recent articles in these pages, Colin Lokey reprised arguments from Zero Hedge that the stock market is being artificially supported by bank proprietary trading, funded by a flood of money from Federal Reserve quantitative easing ("QE"). Lokey's conclusion is that recent gains are built on hot money flows and are therefore unsustainable.

This article expands on Lokey's argument, zeroing in on the effect of QE on the growth in margin debt, and supports the conclusion that the ongoing flow of Fed asset purchases will not be as positive for stocks (SPY) in the short run as many believe.

Stocks and the Fed's Balance Sheet

It is no secret that the Federal Reserve has expanded its balance sheet massively since the financial crisis erupted to try to support economic growth and asset prices. Through large-scale purchases of Treasury securities, mortgage-backed securities and a laundry list of other

The December jobs report from the Bureau of Labor Statistics - which showed that the economy had added 155,000 jobs - was greeted by a chorus of analysts proclaiming that the employment picture was on the mend and would likely accelerate in coming months.

But what if, for this cycle, the current employment picture is as good as it gets and will either remain stuck in low gear or take another cyclical turn for the worse before it gets better? I believe this to be the case, with negative implications for U.S. stocks (SPY).

Oh Lord, Stuck in Low-Gear Again

The party line for strategists seems to be that payrolls have yet to truly recover from the Great Contraction and that they are just waiting for the chance to "hockey-stick" upward. By contrast, the chart below shows that they actually have recovered, just to a low level that

After trending down relative to the Dow Jones Industrial Average since early 2011, the Dow Jones Transportation Average (IYT) has strongly outperformed Industrials during the last quarter of 2012 (see chart below).

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Small cap stocks, represented by the Russell 2000 index (IWM), have similarly stabilized relative to large caps (SPY) and have been trending up since late summer (see chart below).

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The recent outperformance of transportation and small cap stocks has encouraged those who had seen their relative weakness as a bearish indicator.

Green Lights or Red Lights? However, far from being encouraging, transports and small caps may be flashing a warning sign for the broader markets. Indeed, transportation stocks similarly bottomed and outperformed during the 2000-01 and 2007-08 market tops, throwing off false bullish signals. The green shaded areas below show major bottoms in relative performance of transports versus industrials (gray

We spend a lot of time "seeking alpha" on this website. But many don't believe that it is possible for active managers to generate alpha - or returns in excess of the market risk premium - with any consistency. They reference the efficient market hypothesis, which posits that security prices are not predictable and instantaneously adjust to all available information, and cite research showing that the vast majority of mutual fund managers do not outperform their benchmarks.

So, is it possible for managers to generate positive alpha more often than not? And if so, is it possible to identify those managers beforehand with any confidence?

Based on an excellent recent article in the Financial Analysts Journal by Robert Jones, CFA, and Russ Wermers - Active Management in Mostly Efficient Markets - the short answer to both questions is yes. The authors would argue, though, that choosing superior

On November 14th, while the S&P 500 (SPY) dropped 1.39%, an equal weighted composite of closed-end funds (including long equity, covered call, MLP, and high-yield bond), debt-buying companies and mortgage REITs fell by 3.89%. The worst performers in the group were Asset Acceptance Corporation (AACC), which fell 10.66% and the PIMCO High Income CEF (PHK), which fell 6.64%.

This accelerated a trend over the past month during which the closed-end fund sub-group fell 8.76% and the debt-buyer/mortgage REIT sub-group fell 18.86%, versus the 5.12% drop in the S&P 500.

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Note: CEFs include PHK, EVV, BOE, CII, RVT, EOS, KYE, NHS; Debt-Buyers include AACC, PRAA, and ECPG; Mortgage REITs include NLY.

Weakness has occurred in two waves over the past month, with debt-buyers and mortgage REITs selling off in early November and the sell-off in Closed End Funds accelerating over the past week. It has also been echoed

Volatility has returned. After breaking an important medium term trend line on Friday (10/19), the S&P 500 (SPY) followed through Tuesday with a major gap down, breaking through its 50-day moving average and finding support at its April 2012 highs (see chart).

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The Nasdaq (QQQ) outperformed the SPY by about 0.5%, though continued its downtrend, finding support at its 200-day moving average and a major trend-line from summer 2011 (see chart).

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The CBOE Volatility Index (VIX) rose over 13% and sits above its 200-day moving average (see chart below).

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Despite the S&P 500's small consolidation bounce today, technical measures like the RSI and MACD do not yet look oversold and the VIX remains relatively subdued, suggesting that this correction may have further room to run.

Momentum and Reversal

Amid volatility, it is helpful for investors with an equity mandate - and

In my mid-July article on natural gas prices ("Can Natural Gas Avoid the Third Quarter Slump?"), I was looking for a tough autumn for spot gas, and more specifically, the United States Natural Gas fund (UNG), because of seasonal upticks in production and in contango, as well as the potential for declining demand and increasing weekly injections.

These dynamics had, together, led to peaks and gradual declines in UNG share prices - and natural gas spot prices - in mid-to-late summer over the past several years. However, this year, gas has had quite a strong third quarter, with UNG recovering from an August correction and continuing to trend higher in September and early October (see chart below).

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Both natural gas spot and futures are now testing technical resistance areas. Near month natural gas futures are testing the upper band of a descending triangle after rallying

House prices in the United States increased by 181% between September 1990 and May 2006, according to the Case-Shiller 10-City index. Demand was initially driven by bargain-hunting home buyers who could put money down and pay principal and interest; people like my mother who, in 1992, bought the townhouse in Fountain Valley, CA, where I would spend my high-school years.

Over time, prices rose - supported by low interest rates following the popping of the tech bubble in 2000 - and the incremental house buyer became essentially a speculator who was hoping that the rising value of the home would eventually allow them to sell at a profit or refinance into a more sustainable loan. However, as the Federal Reserve began to raise interest rates in the mid-2000s, the supply of available credit was not enough to continue financing the increase in prices, causing them to plateau and fall in

"Who earned it? Eh? I thought so. Your father. You stand on dead men's legs. You've never had any of your own. You couldn't walk alone between two sunrises and hustle the meat for your belly for three meals. Let me see your hand…Dead men's hands have kept it soft." - Wolf Larsen, The Sea Wolf

Like Humphrey Van Weyden, the protagonist of Jack London's, The Sea Wolf, Treasury investors have been the recipients of a legacy of good fortune over the past thirty years. The actions of former Fed chairman Paul Volcker to break entrenched inflationary pressures, combined with disinflationary factors such as the computer and internet revolutions and the entry of billions of new workers into the global workforce, have provided the tailwinds for a 30-year downtrend in Treasury yields (see chart below).

However, rough seas may be ahead. Real yields on the benchmark 10-year

There has been a lot of hand-wringing going on about the Federal Reserve's latest, open ended quantitative easing program - or commitment to buy $40 billion of mortgage backed securities per month until high unemployment stages a "substantial improvement."

Some have argued that the Fed is stoking the fires of hyperinflation and advocates storing gold coins in Canadian vaults and stocking backyard bunkers with plenty of guns and gasoline. Others scoff at these naysayers, pointing out that the Fed has engaged in two previous rounds of QE with inflation not even batting an eye. So, who is right, and what are the implications for the S&P 500 and inflation hedging in our portfolios?

QE and Money Supply Growth: The first two rounds of QE meaningfully increased the money supply, with 1-year growth in M1 - or the Monetary Base plus Travelers Checks, Demand Deposits and other Checkable Deposits -

Natural gas has experienced a powerful rally over the last few weeks, driven in the short-term by record high temperatures across much of the United States. However, as I pointed out in my June 5th article, in both 2010 and 2011, June rallies in Henry Hub spot natural gas (NATGAS) and the United States Natural Gas Fund (UNG) have given way to 20%-50% third-quarter slumps that have continued into the early-to-late fall (see chart below).

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Indeed, if we index UNG prices to December 31st of each year and look at the performance over the ensuing year, we see that UNG has been tracking the 2010-11 experience very closely, both in its early-year collapse and spring rally (see chart).

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So, will UNG give in to a third-quarter slump, as it has every year since 2007? Or, will this time be different, as authors like

"You know the saying, 'Red sky at night means fair weather tomorrow; red sky in the morning means foul weather all day.' You know how to interpret the weather signs in the sky, but you don't know how to interpret the signs of the times!" - Jesus Christ, quoted in Matthew 16:2-3 (NLT)

"Come writers and critics who prophesize with your pen. And keep your eyes wide, the chance won't come again. And don't speak too soon for the wheel's still in spin. And there's no tellin' who that it's namin'. For the loser now will be later to win; for the times they are a-changin.'" - Bob Dylan, The Times They Are A-Changin'

You may be wondering what Jesus and Bob Dylan have to do with investing. The answer lies in where we, as investors, focus our attention.

The last four years -- with their cliff-hanging global

The semi-conductor industry as a whole has had a rough nine months. First, it absorbed a one-two punch during 2011, with natural disasters such as the Thai flooding adding to the pain and disruption caused by the European debt crisis and general economic slowdown. Then, after a spring of better-than-expected demand and rising share prices, the recent stock market correction went and erased all of the gains for the year.

Shares of Applied Materials (AMAT), the largest semiconductor equipment supplier by revenue, have felt this pain more than most. Over the past 200 days, Applied's shares have underperformed the Philadelphia Semiconductor Index by over 11% (see chart) and have underperformed the S&P 500 by almost 20%.

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However, things may be starting to turn around for Applied. Business conditions look set to improve into the second half of the year and the stock is currently trading near levels

On May 25th, I published an article recommending that traders short United States Natural Gas Fund (UNG) to position for what I saw as negative seasonal and technical patterns, as well as unsupportive fundamental dynamics.

Over the following week, natural gas spot prices fell 9% and UNG fell 12%, breaking below its 50-day moving average and its 61.8% Fibonacci retracement line by Friday, June 1st. Monday UNG was testing back above the 50-day and the 61.8% Fib, in line with consolidation in the broader market (see chart)

(Click charts to enlarge).

What now? So, was this a short-term, technical correction in a bullish trend that will resume through the summer, as several commenters argued? Or, is it the start of a summer / fall collapse like we saw in 2010 and 2011?

Over the longer term (2013 and forward), I agree with the bullish case put forward by

Like the tulips in my garden here in Tacoma, the "flowers" of spring natural gas rallies have wilted in each of the last two summers, leading to significant losses for bullish investors and traders. I expect the current natural gas spring rally to wilt as well and recommend shorting United States Natural Gas fund (UNG).

Spot Prices Saw Summer Collapses in 2010-11; 2012 Following Same Script: Between 1993 and 2008, on average, the summer was a great time for natural gas spot prices, with July and August registering among the highest average future 3-month price changes. However, in both the 2010 and 2011, natural gas rallied strongly in the second quarter and then collapsed in the summer and early fall, with average future 3-month declines of 15-20% in June, July and August.

So far, in 2012, spot prices have been sticking to the 2010-11 script, falling the first quarter

"If I were one of these crazy hedge fund guys, with the slick haircuts and fancy shoes and racing stripe shirts, the trade I'd put on is 10-times-leveraged natural gas long versus 10-times short Apple (AAPL)." - Jeff Gundlach, Doubleline, quoted in "The Reformed Broker" blog.

It seems like everyone is talking about the low price and rosy long-term prospects of North American natural gas. Indeed, natural gas spot prices at the Henry Hub in Louisiana have risen by 43% over the past three weeks and are still near major historical support levels last touched in the late 1990s (see chart below).

However, holding longer-term bullish positions in the futures market may be increasingly challenging as we move into the summer inventory-building months and contango gets set to worsen.

The Bull Case Holds Water: Natural gas bulls point to the fact that, while the shale drilling boom