The Path To Full Employment Would Likely Be Successful If The Fed Were Really Committed To It [View article]
"The question at hand is whether the Fed can plausibly generate more inflation"
stop right there: wages are sticky. There is zero evidence that more stimulus would be inflationary. It's likely to result in growth, with only a minor impact on inflation.
We have to stop talking about the need for "more inflation." Even if one can sell it (you can't) it contradicts what we know about the current employment picture.
Gold and Silver Are Not a Safe Haven [View article]
A couple of thoughts:
1. Demand as a share of income is not ever-increasing. For example, India's ~800-ton per year jewelry demand, at 1700/oz is about 3% of India's GDP. Could it go to 4%-5%? maybe. Could it go to 10%? Unlikely -people need to buy other things. Ultimately, gold cannot appreciate much faster than world GDP. Since India and China constitute the bulk of jewelry gold demand, the demand for gold ought to be closely tied to their GDP growth rates. Yes, as people get richer they buy more, but only to a point.
2. Investment demand is ~40% of gold demand. For the same reason (people only save a certain proportion of income), appreciation in gold ultimately cannot be much higher than world GDP growth.
3. There is no guarantee someone will buy gold from you at a higher price. If there is a channel for inflation-protection, it is via the wealth effect: when people are richer they buy more gold. However, unless you posit an ever-higher fraction of income going to gold, the price of gold will eventually choke off demand. Or, people's incomes will fall and they have to liquidate to eat and pay the mortgage.
4. yes, central banks are accumulating reserves, mainly because they refuse to let their currencies appreciate choking off exports. Some of those reserves are in gold. But if you really believe the inflation story, every time the Yuan appreciates and the dollar depreciates - which will help tame chinese inflation - then you should be a *seller* not a buyer.
5. Investment demand at the margin is what is driving the price, which is primarily due to the price trend. when the trend ends and investment demand dries up, there is plenty of demand to meet supply.
6. Gold has gone parabolic in the last month with a big volume spike. That is almost always a good short sell signal.
A weaker dollar is great for the U.S. economy, and manufacturing in particular. The irony about the weak-dollar gold bulls is that as the dollar gets weaker, the U.S. owes effectively less to foreigners (and the economy strengthens). And with 8133 tons of gold in reserve, 700 million barrels of oil, and ownership of 30% of the land mass of the U.S.A with mineral rights (including 70% of Alaska), higher commodities makes the U.S. Treasuries safer as an investment, because the U.S. Govt has plenty of collateral to post or assets to sell to cover the $4.5 trillion in Treasuries we owe foreigners.
Natural Gas ETF Suspends New Shares: Are There Alternatives? [View article]
counterparty risk-> on ICE cleared OTC swaps the risk is essentially the same as NYMEX cleared products. UNG does not face the counteryparty directly though ICE clearing. Liquidity on ICE for the look-alikes is fine. Clearly the author does not understand ICE cleared products.
closed ended-> Since when are futures and swaps "closed ended." wha? USL uses swaps to track "12 month oil". The real risk is that the swaps perform differently than the prompt (that is, if UNG uses 3, 6, 12 month swaps instead of mostly prompt and prompt +1). A 6 month swap will perform very differently than 1 month prompt and is likely to outperform prompt declining prices and underperform prompt rising prices (back months will not rise/fall as much as prompt). For example, suppose there is a hurricane: Oct and Nov production get disrupted so those contracts soar. Dec, Jan, Feb mos are increasingly less likely to be affected and rise less. The increase in a swap will be the avg increase of all those months. If UNG uses 2-month swaps or prompt and prompt+1 then UNG rises the full amount of oct and nov futures increases. If UNG uses a 6-month swap it rises less (the avg increase of all 6 forward months).
On the roll yield, using swaps might actually mitigate the loss in a steeply contango market as less is lost rolling the back month(s) if the contango flattens after 6 months as it does now. Of course, this depends on the term of the swaps and the shape of the contango.
Monetizing Debt: Disinformation in the Blogosphere [View article]
It does not matter whether the Fed buys debt them from the auction or from the dealer, they are still printing money ("monetizing the debt"). This this not is some super secret plan: Short term interest rates are essentially zero and they are employing other means to keep interest rates low (Bernanke himself has written about this many times). Duh, with unemployment at 10% they want to prevent another great depression (when, by the way, the Fed reacted to a bursting stock market by sucking up money rather than printing it). Also, they can do the reverse (sell the bills they own) to suck up liquidity.
The real question is whether they have some sort of interest rate target for the 7-10 year. In my mind they should: since Volcker the fed has generally targeted interest rates and employed the repo/fed funds market to effect the short term rate (buying/selling to effect the rate they want). They publicize and affirm the short term rate target every six weeks. If they are employing 5,7, &10 year debt to accomplish the same thing (in principle not a bad idea since the real economy is driven off longer rates) then they should set a rate target farther out too. At what rate are they buying vs selling the 7 year? Buying/selling - setting the market price- their activity has all kinds of implications, from determination of mortgage rates & bond yields, even to asset allocation schmes between debt/equity. If they buy regular debt at the expense of TIPS they distort inflation expectation signals. They should tell us: where are you buying/selling (at the very least, so we do not get plasteredleaning against the fed!).
Fannie and Freddie Can't Sell Their Debt [View article]
"switches" or swaps are pretty common - an investor who already owns the debt picks up a little yield for the new issue over the old. Same credit and interest rate risk, more yield. The old debt that they swapped out of still has to be sold by the bank anyway - not like it just vanishes. So who's the bank selling the old issue to? Fannie and Freddie are not redeeming and the bank is likely not taking the risk on its balance sheet so stands to reason someone is buying the old debt as well.
Why Dendreon's Provenge Must Be Approved [View article]
dont forget about the shelf they need to sell and the fact that they are burning cash. great product great stock. this is a bubble about to burst on ya. target price: $1.50
Standard Pacific's Book Value Impairment Scenario [View article]
A lot of attention on price to book but what people really need to focus on is cashflow and liquidity. some of these homebuilders are in a death spiral of negative cashflow, with potential inventory writedowns that will trigger a liquidity crunch. the cycle hits bottom when someone's bankrupt.
Metals and miners are not created equal. While the long term supply/demand for some metals might remain, lower energy prices will be more than offset by increasing labor costs as labor looks to get a piece of the action (as the recent strikes show). Moreover, the housing slump in the U.S. is going to kill demand for copper (whose demand is principally driven by residential construction). Moreover, China is actively working to cool the red hot construction market not only with monetary policy but by firing regional govenors who fail to slow projects.
The 1-2 punch of increasing labor costs and slumping demand is going to drive companies like PD and PCU with 50% exposure to the U.S. market well below current levels.
Commodities bulls are buying all metals and miners alike - just based on news of OPEC cutting oil supply - but we are now entering a phase of differentiation between margins and markets, miners and metals. There are some great long/short trades to be made by differentiating the propects of individual companies and markets against the backdrop of hedge funds who are all buying and selling the whole commodities stack en masse.
Launch of "Salesforce for Google AdWords" Demonstrates the Power of AppExchange [View article]
Saleforce.com may indeed be able to grow the top line as fast or faster than forecasted but that still does not bode well for the stock price. At more than 50x free cash flow, this stock is a dog. Combined with the trailing PE of 210, and near free-for-all insider selling, it looks like a dot-com bubble stock from a bygone era. Maybe its a great company but the stock is a clear sell, maybe even a short.
The Path To Full Employment Would Likely Be Successful If The Fed Were Really Committed To It [View article]
stop right there: wages are sticky. There is zero evidence that more stimulus would be inflationary. It's likely to result in growth, with only a minor impact on inflation.
We have to stop talking about the need for "more inflation." Even if one can sell it (you can't) it contradicts what we know about the current employment picture.
http://bit.ly/JF5lY0
http://nyti.ms/IqizBm
Gold and Silver Are Not a Safe Haven [View article]
1. Demand as a share of income is not ever-increasing. For example, India's ~800-ton per year jewelry demand, at 1700/oz is about 3% of India's GDP. Could it go to 4%-5%? maybe. Could it go to 10%? Unlikely -people need to buy other things. Ultimately, gold cannot appreciate much faster than world GDP. Since India and China constitute the bulk of jewelry gold demand, the demand for gold ought to be closely tied to their GDP growth rates. Yes, as people get richer they buy more, but only to a point.
2. Investment demand is ~40% of gold demand. For the same reason (people only save a certain proportion of income), appreciation in gold ultimately cannot be much higher than world GDP growth.
3. There is no guarantee someone will buy gold from you at a higher price. If there is a channel for inflation-protection, it is via the wealth effect: when people are richer they buy more gold. However, unless you posit an ever-higher fraction of income going to gold, the price of gold will eventually choke off demand. Or, people's incomes will fall and they have to liquidate to eat and pay the mortgage.
4. yes, central banks are accumulating reserves, mainly because they refuse to let their currencies appreciate choking off exports. Some of those reserves are in gold. But if you really believe the inflation story, every time the Yuan appreciates and the dollar depreciates - which will help tame chinese inflation - then you should be a *seller* not a buyer.
5. Investment demand at the margin is what is driving the price, which is primarily due to the price trend. when the trend ends and investment demand dries up, there is plenty of demand to meet supply.
6. Gold has gone parabolic in the last month with a big volume spike. That is almost always a good short sell signal.
Gold Is a Bubble [View article]
For more on money and inflation, link here: www.econbrowser.com/ar...
Natural Gas ETF Suspends New Shares: Are There Alternatives? [View article]
closed ended-> Since when are futures and swaps "closed ended." wha? USL uses swaps to track "12 month oil". The real risk is that the swaps perform differently than the prompt (that is, if UNG uses 3, 6, 12 month swaps instead of mostly prompt and prompt +1). A 6 month swap will perform very differently than 1 month prompt and is likely to outperform prompt declining prices and underperform prompt rising prices (back months will not rise/fall as much as prompt). For example, suppose there is a hurricane: Oct and Nov production get disrupted so those contracts soar. Dec, Jan, Feb mos are increasingly less likely to be affected and rise less. The increase in a swap will be the avg increase of all those months. If UNG uses 2-month swaps or prompt and prompt+1 then UNG rises the full amount of oct and nov futures increases. If UNG uses a 6-month swap it rises less (the avg increase of all 6 forward months).
On the roll yield, using swaps might actually mitigate the loss in a steeply contango market as less is lost rolling the back month(s) if the contango flattens after 6 months as it does now. Of course, this depends on the term of the swaps and the shape of the contango.
Monetizing Debt: Disinformation in the Blogosphere [View article]
The real question is whether they have some sort of interest rate target for the 7-10 year. In my mind they should: since Volcker the fed has generally targeted interest rates and employed the repo/fed funds market to effect the short term rate (buying/selling to effect the rate they want). They publicize and affirm the short term rate target every six weeks. If they are employing 5,7, &10 year debt to accomplish the same thing (in principle not a bad idea since the real economy is driven off longer rates) then they should set a rate target farther out too. At what rate are they buying vs selling the 7 year? Buying/selling - setting the market price- their activity has all kinds of implications, from determination of mortgage rates & bond yields, even to asset allocation schmes between debt/equity. If they buy regular debt at the expense of TIPS they distort inflation expectation signals. They should tell us: where are you buying/selling (at the very least, so we do not get plasteredleaning against the fed!).
Fannie and Freddie Can't Sell Their Debt [View article]
Why Dendreon's Provenge Must Be Approved [View article]
Why Dendreon's Provenge Must Be Approved [View article]
Standard Pacific's Book Value Impairment Scenario [View article]
Clearing Up The Picture on Syntax-Brillian [View article]
Brillian-Syntax: At Low End of Market at the Wrong Time [View article]
Metals and Mining: Blast Off! [View article]
The 1-2 punch of increasing labor costs and slumping demand is going to drive companies like PD and PCU with 50% exposure to the U.S. market well below current levels.
Commodities bulls are buying all metals and miners alike - just based on news of OPEC cutting oil supply - but we are now entering a phase of differentiation between margins and markets, miners and metals. There are some great long/short trades to be made by differentiating the propects of individual companies and markets against the backdrop of hedge funds who are all buying and selling the whole commodities stack en masse.
Launch of "Salesforce for Google AdWords" Demonstrates the Power of AppExchange [View article]