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Bruce Vanderveen
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The Federal Reserve has pegged interest rates to all time lows. This leaves income investors in a quandary. Bruce looks at the best income, growth, natural resource, and technology equities while taking a contrarian approach. ETFs can often be used to manage risk for investors who wish to take a... More
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  • Hot Summer, Hotter Bond Markets
    Unrelenting summer heat has broiled most of the U.S. into a stupor.  Russia had extremes of heat and drought not seen in hundreds of years.  Global warming theories are again on the front burner.

    The SP500 has wandered aimlessly all summer and now is about where it was in early June.  The U.S. dollar has mostly fallen, though firming recently.  Commodities, as show by the CRB Spot All Commodities Index, are strong and rising.  Equity volume is light, cash positions high.

    Many "went away in May" and are sitting out this hot summer in cash or treasuries.  Is this a smart thing to do?  Well, the stash under your mattress may be safe as long as ex-spouses, burglars, mice and the federal government stay away.  I would be most worried about that last one.

    But, wow!  Look at the bond markets!  In case you haven't noticed, everything is on a tear.  Treasury, corporate, sovereign, and municipal bonds, all are trending (in some cases rocketing) up.  U.S. 10 year treasuries as shown by IEF recently topped 98 with the yield dipping below 2.6%.

     
    Even traditionally risky bonds are in a strong upswing.  Consider junk (aka hi-yield) issues.  JNK has risen signifigantly over the last 3 months -- no recession predicted here.

     
    Emerging market bonds also continue to out-perform.

    As an (perhaps unrelated) aside note: Obama's economic advisers are jumping ship.   Peter Orszag, director of the Office and Management and Budget resigned in late June while the ebullient Christina Romer, chair of the White House Council of Economic Advisers, plans on stepping down in September.  Both Orszag and Romer say they are leaving for personal reasons, not job frustrations.  Well . . . draw your own conclusions.

    So what to make of it all?  Do record low 10-yr yield indicate a flight to safety ahead of a coming crash?  Or, do steadily rising hi-yield (junk) bonds, strong commodities and emerging market indexes indicate a recovering world economy and strengthening inflationary trends? 

    It may be a mistake to fight the upward trending 10 year treasury but I would watch this very carefully.  U.S. treasury upside potential is limited while downside risk is very high --  if bonds crash.  It may not be too early to take a position in TBF or TBT (short and ultra-short 20+ year U.S. treasuries ETFs). At the very least, keep a close eye on this market.   Also, you may wish to consider ENY, the Canadian Energy Income Index, which has both yield (3.6%) and real assets of  Canadian oil and gas.  Gold (GLD) will be strong with disruptions in currency markets.

    With the U.S. government facing northward of $100 trillion dollar in debt obligations eventual massive money printing seems inevitable.  It just isn't here yet.  Things could end badly with high inflation or possible currency (U.S. dollar) devaluation.

    The hot summer of 2010 will soon be a memory.  If bonds go south, however, a lot of other unpleasant things will heat up fast, making us long for the days when just the weather was hot.



    Disclosure: Long IEF, TBT
    Tags: IEF, JNK, TBF, TBT, ENY, GLD, EMB, Bond Markets
    Aug 17 5:01 PM | Link | Comment!
  • A Lot to Lose
    The immensity of the unfolding disaster from the out of control oil well in the Gulf of Mexico is only now beginning to sink in. Estimates, which vary wildly, show as much as 200,000 barrels of crude a day spewing into the ocean. We are in an early stage of an unprecedented environmental disaster.

    Last Sunday's St. Petersburg Times Headline "A Lot to Lose"  says it all. And once the oil reaches the Gulf Stream it will be dispersed from off the Louisiana, Mississippi, and Alabama coastlines to around Florida, up the U.S. east coast, then across the Atlantic toward Great Britain and Europe. One can only speculate on the detrimental effects on fish, shrimp, birds, sea turtles and other wildlife. We can only cross our fingers hope for the best.

    Don't own BP stock? Think this doesn't affect you? Think again! Florida's pristine sand beaches, the price of seafood, the birds, the sea turtles, all will suffer. You better believe that everyone who drives will be paying more for gas because of this catastrophe. Sarah Palin's "drill baby drill" image and Rush Limbaugh's "Eco-Nazi" rants are about to get a long over due dose of reality.

    Gulf of Mexico oil production, one of the two bright spots (the other is North Dakota) in U.S, has dimmed. Oil production has been increasing in the Gult in the last few years. Now, with new drilling temporarily halted, that trend may reverse.

    Since the U.S. absolutely needs oil, economic considerations will prevail driving even more drilling. We will pay for it not only at the pump but in diminished quality of fisheries and beaches.

    Who is to blame? BP, who operated the now sunken rig? Transocean (RIG), who owns the rig? Cameron (CAM), who made the apparently malfunctioning blow out protectors? Alan Von Altendorf, who is well versed in the field, forecasts BP costs at $10 billion and Transocean $1 billion, STO, and HAL are also impacted. You can read his article here. Legions of attorneys will be arguing this one for a long time. They are all already leaving off ambulance chasing and flocking to the Gulf coast.  Billions of dollars beckon.

    And this is how it always seems to play out. The road to peak oil is not a smooth slow rise. Rather it goes forward and backward in jolts. This disaster is one of the jolts up. It is never a simple smooth trend. A full blown global crisis (markets are wildly down as I write this) may yet again drive oil prices dramatically lower. In the long run. however, supply/demand issues worldwide, and global fiat money printing will propel oil pricets much higher.

    Back in the 1960's we lived with the environmental illusions that as long as we picked up our litter, didn't carve initials in trees, followed Smokey the Bear's admonishments, and ate the government recommended three square meals a day, all would be well forever.

    Now we have thick oil on our beaches and in our oceans, crashing fisheries, hardwood trees dying by the thousands across the eastern U.S. from man dispersed exotic insects and fungi, and 62% of Americans overweight or obese with gas guzzling SUVs.  Where did it all go wrong?

    Disclosure: No Positions
    Tags: BP, RIG, CAM, HAL, STO, Oil Spill
    May 05 7:16 AM | Link | Comment!
  • Bang! Zoom! Straight to the Moon!
    On hearing the latest jobs report Larry Summers told the Financial Times "we are now moving toward escape velocity."

    According to Summers the Great Recession is now rapidly receding in the ship's rear-view portal.  Whether we reach the moon, fall out of orbit, or end up lost in space remains to be seen though.  "One of these Days America . . . ."  Yes!  We will find out!

    After the bang of money creation, we are zooming!  Stocks are up 70% in a year, gold, federal debt, interest rates, all seem to be nearing "escape velocity".  The boosters have ignited, the rockets are thundering.  Off we go, pushing rapidly into the deep black depths (or is it debts) of outer space.

    163,000 people found jobs last month, 48,000 of them as census counters.  Bill Bonner comments "If you could create wealth by having people count one another, perhaps we could create even more wealth by having them count the stars in the heavens." Maybe put em to work in  Montana, no light pollution.

    Alice never did get ". . . Pow! Right in the Kisser!".  It was all bluff.  Let's hope Larry Summers is so kind.

    Note: For those of you under 60: "Bang! Zoom! . . .", "One of these days ...", and "Pow! Right in the Kisser!" are paraphrased from "The Honeymooners", a 1955 TV sitcom starring Jackie Gleason as Ralph and Audrey Meadows as Alice.   I took the liberty of substituting "America" for "Alice".

    Disclosure: No Positions
    Apr 13 4:43 PM | Link | Comment!
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