phillips49

Stocks / Bonds Intermarket Considerations

Old Trader,

As I understand the author, rising below grade bond prices as related to investment grade bond prices, indicate improving economic conditions. Comparing the price divergence of LQD to JNK since the 1st of March, shows rising below investment grade bond prices.
Not being bearish, to me doesn't necessarily mean bullish either. To me it means bearish is increasingly risky. Cautiously optimistic would be more appropriate.

Stocks / Bonds Intermarket Considerations

Thanks,

Good article. The last 30 days do show the divergence you speak of between investment grade and below investment grade bond prices (using JNK and LQD as proxies) and is also coincident with upward movement of stock prices. This would indicate improving economic conditions. Bearish is wrong place to be.

Don

Using History to Plan Near-Term Investing

Conspiracy of Fear

I woke up this morning feeling fine. It’s a bright sunny fall day. My car was still in the driveway. The gas station was pumping gas at $2.79 per gallon. Traffic was normal. Best Buy was busy with the usual Friday payday trade. My job was still there. My bank ATM still worked. That is the reality of the day.

The newspaper headlines read WORST EVER WEEK FOR THE DOW. My paper assets are now worth 20% less than they were a week ago. Jeepers, what is going on here?

So I have to ask, what was the reality of the week?

For starters, for every dollar I lost, someone made a dollar someplace. You can bet on that. The dollars didn’t just burn up or evaporate. The dollars are still there. For every sale, there was a buy. That means that wealth just changed hands. Someone picked my pockets. Someone got richer as I got poorer.

Well, who would want to do that? Well, probably the same ones that cheered on the bull market in equities, housing, real estate, energy, gold and investing for the long term. Now, in light of the financial crisis in banking, the cheerleaders are propagating waves of fear overwhelming the average little guy. Stories of the crash of 29 lead the way. Sell your stuff at a loss, hoard cash. Don’t take a chance.

The reality of it is, they have exhausted feeding upon each other and are now feeding upon us. And it’s working. They are picking our pockets again. And we are helping them. Just as in 29, some are getting rich at the expense of others. Someone is buying up your fire sale assets. And we are saying thank goodness I got out with something.

The reality is that if there were no sellers, prices would skyrocket because there would only be buyers. The reality is that business fundamentals don’t dictate the fire sale. The P/E ratio of SPY is 13.5, well below the historic S&P average. The 30 year average P/E is around 18. The 20 year around 22.

The reality is, this ain’t 1929. The reality is that the nation will survive the market, as it always has. The reality is the money will be in different pockets when it comes out the other side and we will have helped them.

The Credit Hostage Crisis

Please don't take this as defending the fat cats on Wall Street, but it seems to me that there is plenty of blame to go around here.

If the root cause of the problem, is the housing market collaspe and mortage defaut, well then who did that?...it wasn't Wall Street.....it was us!

Yes, the FED kept rates too low too long and money was easy, yes Wall Street invented CDS's and CDO's, yes accounting regulations require mark to market, not mark to model, yes the FED kept rates to high to long and were igorant of the impact on derivitives, but we (the taxpayer) borrowed the money...nobody made us take it....nobody made us bid up homes prices beyond reasonable value, noboby forced us to get in over our head...we fell for it...we created the housing bubble, we are the ones defaulting, we the people are the problem.

At the end of the day, we were no better than the banks or Wall Street.

The Herd of Lemmings, Part II

The dollar's movement Friday does not explain gold's 15% decline from it's July's highs. Gold like other commodities is supply/demand driven. Investors are bailing out of all asset classes including gold. Many don't trust anything at the moment. Reduced demand will yield reduced prices on gold as well. Gold has no particular value of it's own, it is only worth what someone else is willing to pay for it at a particular time.

Meet Mr. Market: Jim Cramer

Actually I like Cramer. Anyone remember Wall Street Week in Review. Pretty dull. Cramer gets you excited about checking things out. Yep he's showman...he has a show! Go figure. I read his book and I watched his show. And I followed his best advice.....Do your homework.....You learn a lot doing your homework. I made a little money with some of his picks. In 2006 his stock of the year was ATI. It was an easy double. But I made more....Doing my own homework. I thank him for making what can be very boring a lot more exciting! I learned a lot.