Michael B. Krause

http://scriabinop23.blogspot.com
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    • Sat Feb 16th 10:51 AM | Rating: 0 0
      Commented on:
      The Long Bond is Falling - Why?
      the jury is still out. if we ACTUALLY have a deep recession everyone is forecasting, aggregate demand WILL slowdown and thus prices will have to come down. Inflation rates will temporarily change.

      So if you are indeed right, and inflation *for the next 2 years* be at 5%+, then this is also a signal stocks are a buy now (since prices won't drop because economic activity won't reduce from here).

      I think this is all a wrong assumption -- when real scary #s of economic slowdown (job losses, systemwide defaults, etc) start hitting, the long treasury bond will fly in both the flight to quality as well as concerns about deflation occur. The long bond has no justification at 4.65% if we are in a long term cyclical credit contraction.

      Doesn't anyone remember the 2001 recession when everyone was worried about price deflation? That will justify rates lower.

      As far as oil and commodities are concerned, they will all come off when real demand gets hit in a big way. And that takes a real global recession. That hasn't come yet, nor has the fear of one yet hit. Look at countries like Australia that are still raising rates, have lowering jobless rates, etc all on the heels of rampant commodity demand. When countries like Australia and South Africa turn on lower commodity demand, the bond will look great with a 3% yield.

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    • Sun Feb 10th 14:45 PM | Rating: 0 0
      Commented on:
      The 'Uptick Rule' (A.K.A The Dangers of Dog Piles)
      Well written piece of sarcasm.

      Love it.
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    • Sun Jan 27th 14:56 PM | Rating: 0 0
      Commented on:
      T-Bills vs. Fed Funds: A Recessionary Tale
      Also important to note: operating PEs are what are accepted as typical valuation models (not GAAP PEs) nowadays.
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    • Sun Jan 27th 14:55 PM | Rating: 0 0
      Commented on:
      T-Bills vs. Fed Funds: A Recessionary Tale
      www.econ.yale.edu/~shiller/data/ie_data... is another data source. I took mine from a bloomberg spreadsheet.
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    • Sun Jan 27th 14:54 PM | Rating: 0 0
      Commented on:
      T-Bills vs. Fed Funds: A Recessionary Tale
      Very fascinating work. The inflation relationships are certainly a key factor explaining why we are where we are, but of course inflation rates cycle as well. I will look deeper into this.

      About drop in earnings to the first poster -- its fascinating to look at GAAP versus operating (higher) earnings. My #s are based off of operatiang measures. In actuality, GAAP earnings of 2000-2002 reflected at peak a 49% y/y drop on the S&P. Huge divergence from operating numbers. Just another wrench in the toolbox of analysis. The Shiller #s are GAAP based earnings, while S&P (service) provides both. Take a look www2.standardandpoors....
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    • Mon Jan 21st 11:34 AM | Rating: 0 0
      Commented on:
      So Much for the Decoupling...
      Keep your eye on this chart. Credit spreads. When these blow up, then the market has a reason to sell. Until then, this is completely fear and profit driven (everyone and their mother is short).

      markit.com/information...

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    • Sun Jan 20th 12:27 PM | Rating: 0 0
      Commented on:
      The Treasury Bond Bubble
      Good points.. The bond bubble is just that, but will of course occur at the expense of every asset class.

      I too think bond prices (like you say) are a function of a ton of cash seeking a safe, 'politically correct', home --- more than correctly gauging inflation. You could say a function of increasing money supply to address aggregate demand and bank reserve requirement issues (which the fed and other central banks manage/interact with).

      The long bond is saying that we are at the end of this round of inflationary spike, if you are to infer any message there. My hunch is that the long bond will start to break current resistance when it sees crude oil plummet. Crude oil will guide most of the entire commodity complex (ags and most energy at least), since so much of the world foodstock issues are dictated and correlated by crude demand [oversimplification: corn is overplanted due to ethanol subsidies, wheat and soy complex becomes underplanted, etc etc].

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    • Sun Jan 20th 12:11 PM | Rating: 0 0
      Commented on:
      Don't Buy (Sell) The Bear
      Nice call on the F# minor. Finally someone gets it.

      Here is a response I made on my blog to Reinko:

      But whats happening here is a transfer of wealth from mismanaged corporate balance sheets and investors (holders of subprime bonds) to borrowers (many of whom will file bankruptcy). Running up consumer debt, the borrow still gets to enjoy the benefits of the purchasing power he was given, at the expense of the foolish lender.

      The fed & US govt knows this, and knows the only solution is to devalue the dollar and inflate future earnings quantities to prevent an excessive slowdown and bankruptcy level. This excessive level of debt (ie 30T) however needs to be compared to cash and equity reserves (401Ks, pensions, cash savings, money markets, total home equity base properly discounted to correction in correspondence with total money supply and inflation, etc.) to have a fair evaluation. If the money supply doubled the past 10 years, then its less meaningful a number. The ratio of debt to money supply is more important.

      The fed knows all this and will continue its current policy at the expense of the dollar. This is a weakness of all fiat currencies though, and since this is true, a global economic contraction on the same scale in Europe will hurt the euro just as much. It'll become a question of who hurts more.

      Arguing that we're screwed because total debts have doubled in 10 years sounds wonderful to the bear, but it does not present a true picture when considering cash reserves and total money supply has increased as well.

      So further conclusions: the dollar will ultimately suffer at the expense of the S&P and housing boom. That is, unless other country recessions follow (which is likely, considering the housing price boom is not something unique to the US).

      And if any of you are truly this bearish on equities, I recommend you have a look at this

      scriabinop23.blogspot....

      and this:

      scriabinop23.blogspot....

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    • Sun Jan 13th 19:18 PM | Rating: 0 0
      Commented on:
      Why Technical Analysis is Nonsense
      Heh.. I enjoyed the 3rd person comments.. pretty goofy.
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    • Sun Jan 13th 19:18 PM | Rating: 0 0
      Commented on:
      Why Technical Analysis is Nonsense
      Everyone here has contributed great points. I would like to add he is not aware of the strategies of these hedge funds. They are simply not out in the open. Funds are tightlipped about what they do generally, and this is silly.

      TA is flawed (gambling/dart throwing) if you don't bother to evaluate past success rates as well as risk/reward ratios of prescriptive strategies. Which, yes, makes it useless and a money loser for most.

      But there are ways around that caveat, and whoever expends the effort to do the statistical analysis often is rewarded.
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    • Fri Jan 11th 12:12 PM | Rating: 0 0
      Commented on:
      Natural Gas Report: Winds of Change
      Yes, agreed. Against $95 crude, natural gas against the same 'inflation scale' of 6:1 ratio with more balanced (not bearish as the last 2 years) supply/demand outlook gives a price target of $15.83. Heating oil prices are even higher per energy unit.

      There's a lot of room for upside, and even prices at $8.xx, while historically high, are just a reflection of dollar buying power in a *bear* market. This market has an aweful lot of price resistance, and will need the cool to stay as well as a continued hot summer for prices to recover, but I imagine by next winter $15 gas (not in the presence of a hurricane related spike) would not be unimaginable.
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    • Tue Jan 8th 14:24 PM | Rating: 0 0
      Commented on:
      Why Is This Market Holding Up?
      Let me contribute one more thing.

      scriabinop23.blogspot....

      S&P doesn't look so 'bullish' here.. Rising price levels haven't boded well for the S&P.
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    • Tue Jan 8th 14:16 PM | Rating: 0 0
      Commented on:
      Why Is This Market Holding Up?
      This chart is an attempt to manipulate viewers with distorted scales. While you have good fundamental points, a log scale on the equities side would help show a truer picture of y/y appreciation.

      Furthermore, as evidenced by the dotcom bubble pop, previous to it the russian debt crisis, LTCM, and the asian financial crisis, credit spreads bottomed with the S&P simultaneously, but they started falling 2.5 yrs before the S&P peaked in 2000. This says expect a lag - if history repeats itself, a 3 yr lag to bottom, which should coincide well with a housing bottom and stagflationary environment.

      Although I wouldn't expect the S&P to fall as hard -- earnings are gigantic compared to 2000, and there is quite a base of value that has generated since then. In *real* terms, the GDP is much bigger than 7 years ago. And that means something to corporate valuations.
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    • Fri Dec 14th 12:12 PM | Rating: 0 0
      Commented on:
      Why Treasuries Are the Way to Go in This Market
      Leo: This is a search for appreciation trade, not a yield hunting one. Preferred stock purchases (or corporate bonds) have considerably higher downside in the event a recession occurs (as they take corporate risk). If recession happens (and inevitable increase of defaults associated with that), corporate debt credit spreads will rise and offset some of the gains in the underlying treasury position. (recall corporate debt = treasury of equiv duration + credit spread)

      Furthermore, a yield curve inversion with a recession will enable the longer duration note and bond to fall past fed targets. So even if the fed stops at 3.5%, a flight to quality could enable the long yield to hit 2.5-3.2% just as easily.

      Obviously its hard to imagine 2.5% 10 yr notes with the PPI and CPI #s we are seeing right now, but a global slowdown could turn this commodity based inflation move an opposing direction. Expect some volatility of PPI/CPI #s. I wouldn't be surprised to see negative CPI/PPI y/y (12 mos from now) if the consumer and world growth continue to slow. Then 2.5% yields are more palatable, aren't they?
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    • Fri Nov 2nd 14:12 PM | Rating: 0 0
      Commented on:
      Oil at $96, Gold at $800 (Fed belatedly worried about inflation)
      you're preaching to the choir.
      View article »
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