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Logical Thought
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My name is Mark B. Spiegel and I'm the Managing Member of Stanphyl Capital Management LLC. I can be reached at: mark (at) stanphylcap (dot) com. My Twitter feed is @markbspiegel
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I don't have a blog, but here's a link to a WSJ article regarding my thoughts on the "flash crash"
  • More TIPs Issuance from Treasury? 6 comments
    Jan 11, 2010 12:00 PM
    There's an interesting article in today's Wall Street Journal about Treasury substantially increasing its TIPs issuance to foreign governments that are afraid of the inflationary ramifications of the huge U.S. debtload. I see this as bullish for bonds, as it should surely hold down long-term rates. After all, even if the CPI is somewhat "rigged", this should still provide quite a bit of comfort to buyers of newly-issued paper. As additional comfort for buyers, theoretically the more TIPs that are issued, the greater the pressure the Fed will feel in the future to hold down the rate of inflation, as it will suddenly have much more "skin in the game". As someone who is very short stocks right now (as of this writing, the S&P has bounced cleanly off the 50-month EMA I've been targeting as a great-looking resistance point), I think it's fair to note this potential removal of a potential near-term "crash catalyst".

    As planned, using margin, I increased my SDS position on Friday at S&P 1145, just under the 50-month EMA. As of Friday's close, I was around 82% in SDS (I wanted to go 100%, but they've raised the margin requirements for leveraged ETFs and half my funds are in a non-marginable retirement account), 35% in DUSA, and 5% in YCS. I will stop out a chunk of the SDS (at least everything on margin) if the index penetrates the 50-month EMA and gets into the low 1150s

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  • Northern Dancer
    , contributor
    Comments (737) | Send Message
     
    Do you mean this development potentially removes a catalyst for a crash in the equities markets, or were you referring to bond markets?

     

    Man, with the VIX down nearly 4% today alone, it seems there are no bears left. Last survey shows that there are 6 in Texas, 8 in California and 1 in Canada. The VIX is now lower than it was in Sept. '08. I realize that doesn't necessarily add any guidance about timing a top, but it does indicate such extreme complacency that it a top could still be just around the corner.

     

    Yet, most of the indicators are showing very little weakness in this rally now, other than that they're extremely overbought. I guess I'm just going to have to stand aside because the day I jump in and go long would naturally be the top. I got stopped out of DRV this morning with a loss of pennies.

     

    It seems the common thought is that the financials will lead the rally higher. It's hard to say because right now they're at a key point. It should become more clear this week which way they're going to go and no amount of technical analysis at this point in time is going to help get a handle on which direction that is. The banks' earning reports this week should reveal that quite clearly. Since I have little doubt the reports will come out as "stellar", I have to assume the rally will likely run for perhaps 18 more years. What are your logicalthoughts?
    11 Jan 2010, 01:48 PM Reply Like
  • Logical Thought
    , contributor
    Comments (4224) | Send Message
     
    Author’s reply » >>Do you mean this development potentially removes a catalyst for a crash in the equities markets, or were you referring to bond markets?<<

     

    I'm actually referring to "both", although I'll be the first person to admit that my knowledge of the bond markets doesn't go far beyond "the basics" + "common sense", so I'd love to hear any and all counterpoints to my "TIPs theory". (Either way, I think that disappointing earnings growth alone will be enough of a catalyst to crash-- as in, a 20% or greater correction-- the equity markets.)

     

    I wouldn't put TOO much credence in the low VIX as being indicative in and of itself of overcomplacency. It's been quite a bit lower, and believe it or not, it's still rather high relative to actual current volatility.

     

    That said, on a 20-year monthly chart of the S&P 500, that 50-month EMA at 1150 just screams out at me as a prime resistance point, which is why I'm now "all-in" on the SDS. If we close in the mid-1150s or higher, I'll probably throttle the SDS back to around a 1/3 position, because I just don't see any obvious technical stopping points above 1150, so I'll have to scale back in based entirely on the fundamentals.
    11 Jan 2010, 02:18 PM Reply Like
  • Northern Dancer
    , contributor
    Comments (737) | Send Message
     
    "Either way, I think that disappointing earnings growth alone will be enough of a catalyst to crash-- as in, a 20% or greater correction-- the equity markets."

     

    Yeah, I've been reading that the markets have built in expectations of earnings that had better be damned good. The odds of all the bigger names hitting the expected homerun earnings are slim in my view. But the game has always been rigged that no matter what the earnings are, they "surprised the street". What a freakin' crock. Makes me so furious that I've kicked the neighbor's dog through the hedge a time or two. But this time around, I'm guessing that the earnings expectations are too high, so I think the chances of "beating the street" are not all that good.

     

    No, I'm not putting too much credence in the VIX because it's really only a derivative of market action. It's value as an indicator is minimal other than that it at least shows a degree of complacency seen at every top... and because it's reactionary, not leading.

     

    For sure, when we look at monthly charts and weekly charts, it becomes pretty apparent that the extremes are just daring investors to go long, at their peril.

     

    About bonds... I'm in a quandary because there's a conflict I don't understand. One theory says that when funds leave the bond market they go somewhere else, the common wisdom saying into the equities markets. So falling bond prices would theoretically mean rising equities prices are likely. On the other hand, falling bond prices mean higher interest rates, and higher interest rates on bonds are a competitor for equities. Which is it? I'm totally confused about what action in the bond markets really means. Of course there are other factors, the most important of which (IMO) is "why" bonds are doing what they're doing. So I think both theories above are rather loose... maybe not even really valid.
    11 Jan 2010, 02:50 PM Reply Like
  • Logical Thought
    , contributor
    Comments (4224) | Send Message
     
    Author’s reply » >>One theory says that when funds leave the bond market they go somewhere else, the common wisdom saying into the equities markets. So falling bond prices would theoretically mean rising equities prices are likely. On the other hand, falling bond prices mean higher interest rates, and higher interest rates on bonds are a competitor for equities. Which is it?<<

     

    There are different "causes" and "effects". Traditionally, rising bond yields would occur as the economy strengthened, in anticipation of higher rates from the Fed, and this would usually occur simultaneously with rising stock prices (due to the strengthening economy), until stock buyers would feel that rates were at a high enough point to kill the economy, at which point they'd sell stocks (ahead of the coming, high-rate-induced economic slowdown) and put the money into bonds.

     

    In the current situation, though, long rates are being driven up not because the Fed is raising them, but because folks are selling bonds due to a combination of a fear of inflation (caused by "money printing", not "capacity constraints") and the perception that there's a massive amount of supply looming. This money seems to be going into commodities, precious metals, higher-yielding bonds (which for a while had been cheap relative to Treasuries), emerging market stocks and, to a much lesser extent than in the past, U.S. stocks. And yes, I do think that if Treasury yields get high enough, money will flow back into them from some of these other asset classes.

     

    I guess this is a long-winded way of saying that I don't think rising long term yields are telling us anything about the economy right now but, rather, they're telling us about perceptions of inflation and "supply" but, regardless, if the yields get high enough they will present real competition for high-PE stocks.
    11 Jan 2010, 03:23 PM Reply Like
  • Northern Dancer
    , contributor
    Comments (737) | Send Message
     
    Long winded is good. I appreciate your thoughts always.
    11 Jan 2010, 03:37 PM Reply Like
  • Northern Dancer
    , contributor
    Comments (737) | Send Message
     
    How are you liking your SDS tonight? "A lot" would be my guess. lol I honestly think the top is in based on a whole lot of shit I study. But don't pay any attention to me, I've been worng before.
    12 Jan 2010, 10:17 PM Reply Like
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