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Jeff Miller  

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  • FOMC Preview: Bernanke's Third Press Conference [View article]
    Tom -- The link in the article referred to several posts I had on this subject over many months. My personal favorite was showing the correlation between QE II and the hours of darkness in NYC.

    I can't do justice to the topic here, and I am not going to change any minds. There were many things happening at the same time, and we do not have enough variation and statistical controls to sort out the causation. Meanwhile, there is a strong market perception linked to QE purchases while ignoring the size of the balance sheet. The Fed sees the latter as more important.

    As to your point about cash available to those selling to the Fed:

    1) Futures margins are very low. I don't think there was some limit on funds available for speculation before QE.

    2) Those who sold to the Fed had to buy the bonds first. They would have the same cash without doing the transaction. The Fed did not add to their buying power.

    The "money printing" comes from increasing M2, and accrues to participants in the reserve banking system. It comes from more lending.....

    Best I can do here....

    Jeff
    Nov 2, 2011. 12:24 PM | Likes Like |Link to Comment
  • FOMC Preview: Bernanke's Third Press Conference [View article]
    Andrew -- While the interest paid is small (just like the rest of us get!) it does seem counter-productive to the goal of stimulating bank lending.

    Maybe someone will ask this question!

    Jeff
    Nov 2, 2011. 12:13 PM | 1 Like Like |Link to Comment
  • Weighing The Week Ahead: Will The Modest Economic Rebound Continue? [View article]
    amalagoli -- Trying not to clarify without over simplifying, I have been thinking about the European effects as involving two different types:

    1) Counter party risk/system meltdown. This is difficult to quantify either in terms of the effect or the probability. The SLFSI is helpful in evaluating this risk.

    2) European effect on US corporate earnings, either through a recession or slower growth. The US recession estimates and earnings estimates help in evaluating this.

    So I agree that we do have data available, but my sense is that few evaluate Europe via the indicators. I think that is Tack's point.

    Good discussion --

    Jeff
    Nov 1, 2011. 11:19 AM | Likes Like |Link to Comment
  • Weighing The Week Ahead: Will The Modest Economic Rebound Continue? [View article]
    Slingwing -- Congratulations on your good call. Our Felix model does not attempt to predict market turns. It will be a little slow at the turn, but it is on the right side of all of the big moves. Trading accounts were either short or out of the market for the big decline, and also caught most of the rebound. You do not need to wonder what we are doing, since I report it each week, pretty much in real time.

    I want to emphasize that when everything is in the "penalty box" it really means that we are out of the market for trading. This is true whether or official vote is bullish or bearish.

    Good luck with your trades. I have my own shopping list this week.

    Jeff
    Oct 31, 2011. 11:43 AM | 1 Like Like |Link to Comment
  • Weighing The Week Ahead: Will The Modest Economic Rebound Continue? [View article]
    dogmarket -- I try to highlight what I expect to be the most important issues each week. If you look back, I have been pretty accurate in meeting that goal.

    Listing everything that MIGHT be a factor is, I believe, not as helpful. It is too much information.

    With that in mind, I think we all know that the Europe story is not over. At any given time we may have more credit rating downgrades and there will be stories about the emerging details. I do not expect the focus on Europe to dominate trading in US stocks the way it has for many weeks.

    I share your appreciation for Sgt. Schultz:)

    Jeff
    Oct 31, 2011. 11:39 AM | 1 Like Like |Link to Comment
  • Weighing The Week Ahead: Will The Modest Economic Rebound Continue? [View article]
    Tom -- Good points.

    Thanks,

    Jeff
    Oct 31, 2011. 11:34 AM | Likes Like |Link to Comment
  • Trading Ideas For Europe, Copper, Tech And CDSs [View article]
    Angel -- there are two problems in hedging CDS exposure:

    1) Using anything other than the credit of the issuer involves basis risk. On this sort of trade, things can be highly correlated but still have large and sustained changes in the basis differential. It is easy to "blow out" doing this kind of trade.

    2) What hedge ratio do you use? From the perspective of the seller, the risk may be ten or twenty or thirty times the premium you are collecting. That is why the "heroes" of the financial crisis of 2008 made so much money. Even if you could calculate an accurate hedge ratio (delta in option terms) that ratio keep changing (gamma in option terms). That is why I was comparing it to put selling.

    Selling CDS is more akin to selling an insurance product. The seller is an underwriter, not a hedger. The business requires deep pockets and plenty of opportunities to get into the "long run."

    I am sure that some sellers are hedging in the way you suggest but it is not the sort of position that is safe to do in size. Compare to Long Term Capital Mangement, for example.

    This is why I think it is easier (and more profitable) to move the market by buying the CDS.
    Oct 27, 2011. 09:52 PM | Likes Like |Link to Comment
  • Trading Ideas For Europe, Copper, Tech And CDSs [View article]
    Peter - I am interested in your comments on the CDS markets. While comparing that market to the bonds is one approach, how much buying does it take to move the market?

    In 2008, we had many sellers, led by AIG, who had no collateral for the risk they were taking. This is similar to equity put sellers before the 1987 crash. When the rules changed, put selling was limited. We have a permanent skew in the implied volatility of options as a result.

    I am skeptical about the CDS supply. Who are the sellers? Since they have no real way to hedge this exposure, how do they measure risk. Meanwhile, the spike in the CDS prices has frequently affected equity prices -- a tail wagging the dog effect.

    Thanks for your thoughts.

    Jeff
    Oct 27, 2011. 04:03 PM | Likes Like |Link to Comment
  • A Consumer Guide To Investment Forecasting [View article]
    retailinvestor -- predicting the direction of long-term interest rates has probably been the worst area for the forecasting community. Even Bill Gross (finally) called a bottom in rates too soon. People have been fooled by tepid economic growth and a race to safe assets.

    Good point.

    Jeff
    Oct 23, 2011. 02:29 PM | 1 Like Like |Link to Comment
  • Weighing The Week Ahead: Real Progress In Europe? [View article]
    cautiousinvestor -- Thanks for your fine discussion of the internal disagreements. As I noted in the article, I have not found anyone who is optimistic on a solution -- at least something that would meet the general tests.

    The big question is what will be the reaction to this week's partial measures.

    The pervasive pessimism on this subject is something to think about. Merely by raising the question in my title -- no prediction of success -- some seem to think I am a wild-eyed optimist.

    I welcome these comments as well as yours, and I am enjoying the music discussion, too.

    Jeff
    Oct 23, 2011. 11:59 AM | 1 Like Like |Link to Comment
  • Weighing The Week Ahead: Real Progress In Europe? [View article]
    Young - I have not been impressed by the "leading" quality of the LEI, but I am open to further consideration. I know that some -- Paul Kasriel of Northern Trust, for example -- swear by it. The index composition has been changed a few times.

    You are correct about the transparency and long-term history to study.

    Thanks,

    Jeff
    Oct 23, 2011. 11:51 AM | Likes Like |Link to Comment
  • Weighing The Week Ahead: Real Progress In Europe? [View article]
    miscon2 - I will have a replacement indicator approach soon. I am working on a separate article that will review what we know about the ECRI and compare to other approaches.

    Thanks for your comment, and to others who understand what I am trying to accomplish.

    Jeff
    Oct 23, 2011. 11:48 AM | Likes Like |Link to Comment
  • Weighing The Week Ahead: Real Progress In Europe? [View article]
    jmrathbun -- Bespoke Investment Group is showing the 50-day moving average. The trading range -- roughly 1120-1220 -- has been widely discussed for weeks. People may draw the chart in slightly different ways, but BIG has a nice, clean presentation, as they always do.

    I hope this is helpful.

    Jeff
    Oct 23, 2011. 11:46 AM | Likes Like |Link to Comment
  • The Quest For Yield: Part 5 - Building Your Income Portfolio [View article]
    donzelion -- acquiring positions by selling puts is just fine for investors who want to own the stock at a good entry price and are willing to accept the put premium instead of ownership if the stock moves higher.

    I think I have written about this approach before, but the investor must be very careful -- prepared to buy the stock at the price of the strike if the opportunity arises.

    Good point and thanks.

    Jeff
    Oct 20, 2011. 08:11 PM | Likes Like |Link to Comment
  • The Quest For Yield: Part 5 - Building Your Income Portfolio [View article]
    It is like buying a bond in that the price moves inversely with the yield.

    But it is unlike the bond in that you might not get your original investment back.

    I encourage everyone to check out the link to the original article (part 3) where I described this more completely.

    I do see why you raised the question, and thanks again for helping to clarify this point.

    Jeff
    Oct 19, 2011. 06:53 PM | Likes Like |Link to Comment
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