How JPMorgan Just Lost A Huge Source Of Profits, Now A Terrible Investment [View article]
I tend to tune out when an author starts with the mumbo jumbo about the "macroeconomy". Having said that, the article does glean some interesting information from JPM's income statement.
Ha, ha. If JPM did not panic and left its CDS deals in place, these could just as well turn around and go massively into the money. As is, the bank seems to be having problems winding these down.
Yield Curve Review: 2 Weeks Ending July 13th: Fear Bid Returned? [View article]
I think the T-bonds pretty much hit a bottom this week in terms of yield. The panic trade is pretty much spent, as witnessed by the large Friday the 13th equities rally. T-bonds have large built-in losses at current prices, and there's really no room left for a downward move in yields. T-bonds don't compensate the holder for inflation, not to speak of the time value of money. Investors should stick to the short-end of the curve if they want or need to be in the T-bond market at all. The long-end has massive interest rate/default risks that are difficult to avoid. Could the US federal government support the same interest rate that it paid in 1982? Probably not. Is it inconceivable that that interest rate or even higher interest rates could occur within the 10 to 30 yr term of a long bond? Not at all. In fact, given ultra loose monetary policies today, it is quite likely. If I held long T-bonds, I would dump them (not much yield or potential for capital appreciation left) and move into high quality equities (which generally have a higher dividend yield, are more inflation/interest rate hike resistant, and provide for potential capital appreciation.)
4 Undervalued Stocks With Yields Up To 11% [View article]
Another two great European companies that investors should consider at current dirt cheap price levels would include Santander (SAN) (a global banking conglomerate based in Spain but with diversified revenues and operations) and Total (TOT) (an energy giant). At current yield and earning levels, shares in these two companies are also undervalued by any metric.
June Nonfarm Payrolls: +80K vs. consensus +100K, prior +77K (revised from 69K). Unemployment rate 8.2% vs. consensus 8.2%, 8.2% previous. [View news story]
Very perceptive post. Those who remain in cash, dump their equities in an orgy of fear at every slight disappointment, or go to US bonds at current prices will be licking their wounds. Who buys a US 10-yr at 1.54% per annum, Friday's close? This price is not sustainable in the long run, as anybody who buys has a built-in loss after accounting for inflation and faces a continuing risk from interest rate volatility. It just doesn't make sense to buy at these prices, even if corporate profits were to disappoint. There is also no clear indication that they will disappoint. Just fear-induced agony about the mere possibility.
June Nonfarm Payrolls: +80K vs. consensus +100K, prior +77K (revised from 69K). Unemployment rate 8.2% vs. consensus 8.2%, 8.2% previous. [View news story]
The economy has changed. Employers make do with less workers. It's called increased productivity. Anybody who works at an office or factory knows that you can make do with far less people, and that particularly the less skilled are not really needed in the same numbers as before. Many people are also no longer needed because they are uncompetitive at current wage costs with offshore workers. That is a structural change in the US economy. In light of this harsh reality, the job numbers are not bad, the market's hysterical reaction notwithstanding.
German legislators and a democracy group file lawsuits in a constitutional court seeking to challenge the country participation in the eurozone's ESM bailout fund and the fiscal compact, laws for which were approved on Friday (I, II). President Joachim Gauck has said he would delay passage of the measure pending any lawsuits. [View news story]
I don't understand what the Germans are complaining about. They were/are the main beneficiaries of the so-called "crisis", even though their stock market tanked. Fear-driven investors were lending the German government at yields that are just RIDICULOUS. At one point, their 10-yrs dropped to 1.16%. Investors who were stupid enough to lend for 10 yrs at that rate got clobbered when the German 10-yr climbed to the current 1.58%, which is still very low. This is in any event a huge subsidy to the German government, at the expense largely of the Italians and the Spanish.
DryShips: Ready To Sail Higher This Summer [View article]
I like your phrase "never short a dull market." Panicky investors don't pay attention to fundamentals. They don't look at book values, debt repayment schedules, etc. They are headline-driven, whether or not those headlines are likely to have any impact at all on a specific company's bottom line.
Headlines coming out CNN can have more of an impact on a company's stock price than earnings announcements and other company releases, which few people seem to read anyways. I remember when the price of SDRL got clobbered during the Macondo oil spill, even though SDRL was not involved and did not have a single drillship in the Gulf. Once folks stopped talking about the oil spill, the price of SDRL almost doubled. That is just one example.
Once the euro "crisis" headlines dissipate and get replaced by cheerful headlines coming out of the Olympics, we should see a rally. A lot of money is locked up in long-dated treasuries, and some of this money will likely flow back into the market over the course of the summer because 1) that is what the central banks want (never bet against the fed!!!) and 2) it makes no economic sense for an investor to purchase or hold long-dated treasuries at current yields.
A massive (9.2% and counting) rally in WTI crude has erased in one day the entirety of June's decline. Talk about due for a bounce - in the 8 weeks prior to today, oil had fallen in nearly a straight line from $106/barrel to $78. Brent crude's (BNO) a slacker, up just 7%. (see also) [View news story]
No, I think it had more to do with short covering by the fear trade. Some people just never learn. Don't bet against the world's central banks. That's like holding the proverbial finger against a dike. Don't dump commodities and equities in favor of long-dated treasuries when every single central banker (as well as common sense) is telling you it is not a good idea.
A massive (9.2% and counting) rally in WTI crude has erased in one day the entirety of June's decline. Talk about due for a bounce - in the 8 weeks prior to today, oil had fallen in nearly a straight line from $106/barrel to $78. Brent crude's (BNO) a slacker, up just 7%. (see also) [View news story]
Modern Fleets Win In Deepwater Drilling [View article]
ORIG is probably the cheapest by far. Trades at a fraction of book. All new ships. Should start paying dividend soon. Loan agreements were recently amended to allow for dividend. DRYS needs the cash for its own capex, and will therefore force a generous dividend policy. ORIG has a $2.9 billion contract backlog that pays the company's market cap, and then some. Even if oil plummets, all its drill ships for this year and a large chunk of the next are contracted out, so bottom line should not be affected. Also has a $500 million share/debt repurchase program. Since both equity and debt trade at a discount, the repurchase program packs a double punch. In sum, a bargain.
Treasury Sale: The Good And The Ugly [View article]
I completely agree with the author. Why would you risk going out the yield curve into the 7-yrs, the 10-yrs, or God forbid the 30-yrs for a paltry 1%-2% in excess yield? The risks that you face are huge. There's interest rate risk, first and foremost. If interest rates spike, the market value of your "risk-free"/"safe haven" long-term bond will get absolutely creamed. Given the very low yields right now, interest rates don't have to spike by that much for you to already start feeling the pain.
Then there's inflation risk and/or default risk, but let's assume that they don't exist. Interest rate risk is the biggie. However, with a debt burden approaching 103% of GDP, does anyone believe the US could handle its debts without monetizing? And debt monetization, doesn't it lead to inflation? And inflation, doesn't it lead to higher interest rates? But wait, could the US handle interest rates on its debt circa 7%, which clobbered Greece, Ireland, etc.? Probably not. These possibilities may seem remote to some right now. However, the 10-yrs, the 30-yrs... these are very long-term instruments. The above could easily happen before the bond matures.
I know, the T-bond market is very liquid. Most people only hold these instruments for a short time, and there's always a "greater fool" to buy these instruments for a higher price... except when there isn't.
Official projections show the establishment (pro-bailout) parties - New Democracy and Pasok - with enough seats to form a government in Greece. New Democracy is projected at 30.1%, Syriza at 26.5%, Pasok at 12.6%. Pasok indicates it will provide the votes to create a majority but will not take part in the government, reports Dow Jones. The euro is buying $1.2705 vs a Friday close of $1.2638. [View news story]
Oh, gee. I guess global capitalism will live to see another day thanks to the election results in a country with an economy the size of Rhode Island.
Meanwhile, in another dimension... the US federal debt reaches 103% of GDP, even as 10-yr T-bond yields drop to 1.57%. In some instances (and in ALL INSTANCES after accounting for inflation), fear-driven investors are PAYING "safe haven" governments (US & Germany) for the PRIVILEGE of lending to them on a long-term basis. I guess these investors want to protect their principal, except that... oooops, bond prices move inversely with yields and as yields revert to historical norms or at least catch up with inflation that principal will get crushed.
Well, at least tomorrow the "euro crisis" fear trade gets cooked. About time, as it is getting annoying.
It was funny that they recently changed their ticker symbol from STD to SAN. I wonder why they took up the STD ticker to begin with. Didn't they notice? Who was the genius? Tickers aside I am long SAN.
Who Do You Believe - The VIX Or The Bond Market? [View article]
10-yr. T-bonds just closed at 1.57%. For every 1.5% increase in yield on the T-bond, purchasers can expect a 23% loss on the mark-to-market value of their bonds. As the bonds revert to historical yields, the orgy of fear will lead to an orgy of losses as the fear trade unwinds. Talk about a "safe haven".
With a federal debt at 103% of GDP, the US is more indebted than Spain. It could not service the yields that the market currently requires from Spain. But that is besides the point... The fear trade will get cooked simply from mean reversion. If yields climb back to inflation levels (as reported by the government), "safe haven" bond purchasers already get hit hard in the back of the head.
How JPMorgan Just Lost A Huge Source Of Profits, Now A Terrible Investment [View article]
Ha, ha. If JPM did not panic and left its CDS deals in place, these could just as well turn around and go massively into the money. As is, the bank seems to be having problems winding these down.
Yield Curve Review: 2 Weeks Ending July 13th: Fear Bid Returned? [View article]
4 Undervalued Stocks With Yields Up To 11% [View article]
June Nonfarm Payrolls: +80K vs. consensus +100K, prior +77K (revised from 69K). Unemployment rate 8.2% vs. consensus 8.2%, 8.2% previous. [View news story]
June Nonfarm Payrolls: +80K vs. consensus +100K, prior +77K (revised from 69K). Unemployment rate 8.2% vs. consensus 8.2%, 8.2% previous. [View news story]
German legislators and a democracy group file lawsuits in a constitutional court seeking to challenge the country participation in the eurozone's ESM bailout fund and the fiscal compact, laws for which were approved on Friday (I, II). President Joachim Gauck has said he would delay passage of the measure pending any lawsuits. [View news story]
DryShips: Ready To Sail Higher This Summer [View article]
Headlines coming out CNN can have more of an impact on a company's stock price than earnings announcements and other company releases, which few people seem to read anyways. I remember when the price of SDRL got clobbered during the Macondo oil spill, even though SDRL was not involved and did not have a single drillship in the Gulf. Once folks stopped talking about the oil spill, the price of SDRL almost doubled. That is just one example.
Once the euro "crisis" headlines dissipate and get replaced by cheerful headlines coming out of the Olympics, we should see a rally. A lot of money is locked up in long-dated treasuries, and some of this money will likely flow back into the market over the course of the summer because 1) that is what the central banks want (never bet against the fed!!!) and 2) it makes no economic sense for an investor to purchase or hold long-dated treasuries at current yields.
A massive (9.2% and counting) rally in WTI crude has erased in one day the entirety of June's decline. Talk about due for a bounce - in the 8 weeks prior to today, oil had fallen in nearly a straight line from $106/barrel to $78. Brent crude's (BNO) a slacker, up just 7%. (see also) [View news story]
A massive (9.2% and counting) rally in WTI crude has erased in one day the entirety of June's decline. Talk about due for a bounce - in the 8 weeks prior to today, oil had fallen in nearly a straight line from $106/barrel to $78. Brent crude's (BNO) a slacker, up just 7%. (see also) [View news story]
Modern Fleets Win In Deepwater Drilling [View article]
Treasury Sale: The Good And The Ugly [View article]
Then there's inflation risk and/or default risk, but let's assume that they don't exist. Interest rate risk is the biggie. However, with a debt burden approaching 103% of GDP, does anyone believe the US could handle its debts without monetizing? And debt monetization, doesn't it lead to inflation? And inflation, doesn't it lead to higher interest rates? But wait, could the US handle interest rates on its debt circa 7%, which clobbered Greece, Ireland, etc.? Probably not. These possibilities may seem remote to some right now. However, the 10-yrs, the 30-yrs... these are very long-term instruments. The above could easily happen before the bond matures.
I know, the T-bond market is very liquid. Most people only hold these instruments for a short time, and there's always a "greater fool" to buy these instruments for a higher price... except when there isn't.
Official projections show the establishment (pro-bailout) parties - New Democracy and Pasok - with enough seats to form a government in Greece. New Democracy is projected at 30.1%, Syriza at 26.5%, Pasok at 12.6%. Pasok indicates it will provide the votes to create a majority but will not take part in the government, reports Dow Jones. The euro is buying $1.2705 vs a Friday close of $1.2638. [View news story]
Meanwhile, in another dimension... the US federal debt reaches 103% of GDP, even as 10-yr T-bond yields drop to 1.57%. In some instances (and in ALL INSTANCES after accounting for inflation), fear-driven investors are PAYING "safe haven" governments (US & Germany) for the PRIVILEGE of lending to them on a long-term basis. I guess these investors want to protect their principal, except that... oooops, bond prices move inversely with yields and as yields revert to historical norms or at least catch up with inflation that principal will get crushed.
Well, at least tomorrow the "euro crisis" fear trade gets cooked. About time, as it is getting annoying.
Europe: Never So Cheap Since 1983 [View article]
Europe: Never So Cheap Since 1983 [View article]
Who Do You Believe - The VIX Or The Bond Market? [View article]
With a federal debt at 103% of GDP, the US is more indebted than Spain. It could not service the yields that the market currently requires from Spain. But that is besides the point... The fear trade will get cooked simply from mean reversion. If yields climb back to inflation levels (as reported by the government), "safe haven" bond purchasers already get hit hard in the back of the head.