Toffe

Shorting U.S. Treasuries: The Best Trade of the Next Decade

TBT, PST and other ETF are EXPENSIVE to hold. There is a built in cost creep factor, since they are levered (cost of debt) and have manager fees.

What happens to a levered ETF if the rates (costs) spike and availability of debt disappears?

You are hoping of a dramatic end to the low T yields, but that dramatic end might also be the end of the ETF you hold - its will simply be impossible to deliver on the promise of double-negative returns.

Be careful for what you wish for - this dramatic end is the reason Fed / Treasury is keeping the rates low, trying to inject life back into markets. I don't disagree with your conclusion that it will end in tears, but when and how are entirely different questions.

'Googled' by Ken Auletta: Schmidt Wants to Build a $100 Billion Media Company

Google is an interesting phenomena, and they are causing some tension with trying to break existing business models. But apart from click-ads, what have they actually radically changed? Caused a stir by "stealing" new sites content on to Google news; Caused a stir to book publishers by trying to scan and provide books for free; Caused a splash with Android, but nobody cares anymore.

Apple has done more in the media sphere than Google;
- restructured music (or rather created an alternative to pirated copying)
- changed the mobile phone business (taking away some of the power from the networks)
- tried to wrench open the film business and so far failed

Updated Campbell-Shiller Regressions

Interesting analysis. To revert to mean, one side of the equation has to correct, either returns on equities increase or yield on bond reduce.

The other way to read the same data it is that the UST yield is too low. This is a consequence of the historical low rates plus massive quantitative easing which are skewing UST markets.

TED Spread Now at Lowest Level in Five Years

And if I don't buy the argument that the recession is over this is yet an other example that the markets are miss-pricing the risk of a tsunami wave of a second banking crisis.

Cramer's Stop Trading! How to Trade Apple Announcements (9/9/09)

Hands-up, those who think this is a trading "strategy"?

>After another spectacular Apple annoucement, Cramer gave his >strategy for trading such events; He recommends buying Apple in >advance of an announcement, selling just prior to the >announcement, and buying back the stock three days later.

Marc Chandler's Compelling Perspective in 'Making Sense of the Dollar'

FX businesses in investment banks are good at spotting short term trends and minute market inefficiencies, however FX markets rarely follow marco economic fundamentals. US rally at the end of 2008 point in case. The rally was probably mainly caused by a spike in risk aversion (run for cover) and repatriation of US institutional investor fund (bring money home to cover domestic liabilities). The US was on the dark edge of financial collapse and seemingly perversely the USD rallied. The FX trend was based on everything but macro economic fundamentals and visible trade imbalances. If you observe this for 20 years as Mr Chandler has, you realise that what drives FX markets isn't only macro economic fundamentals (which you can theorise about), but an array of other changing parameters such as unforeseen crisis. This holds true in the medium term and especially true in the short term. What many people fail to accept is that this can be perfectly consistent with efficient markets, while failing to respect the long term fundamentals.

In the long term, however, the fundamentals will prevail. The debate should really be not IF this will happen with the USD, but WHEN. By printing enormous amounts of money, the US is taking an enormous risk. In 2008, this risk was outweighed by the risk of a financial melt down. That was nearly a year ago following Lehman. In August 2009 the question is: have we arrived to the point where macro economic fundamentals finally have their day and we have a mean reversion? Will the perceived recovery of the global macro economy release investors from risk averseness and will people be back at work and consuming? Actually neither is the case - investors saw the end of world in 2008 and are rightly still weary. Consumers are certainly not back in action.

> If you prefer economic literature that dwells entirely in abstraction and theory based analysis, then this book may not be for you

Is this to suggest that the writings have no theoretical basis? I would humbly suggest to clean up the marketing language, if the target audience is above average readers.

- Toffe

The Shifting Sands of Economic Policy

As always, insightful and well written article with some nasty imagery to illustrate the facts. Could you please provide readers with sources for the $13tn and $56tn amounts for respectively Treasury and Federal debt figures? You suggest some directions that the current situation could take, namely inflating away the debts coupled with a USD devaluation. What do you see the consequences of this?

Crude Oil Demand and the Quick Recovery Hoax

I would suggest the authors point of view is OECD myopic or even worse, US centered. This ignores the much larger global picture. I would suggest to back statements up by facts (on both sides), otherwise it becomes two sets of ignorant fools shouting at each other as seen above. Here is one authority on the demand/supply balance: www.iea.org/textbase/p...

With global GDP growth revisions constantly being down, the demand side of the crude price equation is weighted down, however the supply will not keep up even with the lower growth estimates in the medium to long erm. Economics isn't a religion, where believing is enough. It is a social science, which calls for backing up statements with researched facts.

Big oil earnings have dropped like stones from unprecedented levels in 2007/8, largely because they have got too comfortable, lazy and inefficient. With no prospect of oil at $20/bbl for a sustained period ever again, large companies have acquired bloated management, "R&D" and inefficient supply chains etc. Golden opportunity medium to long term for renewables and start-up oil producers.

Experts on Bing

> Catalyst Group also did an eye-tracking study on these participants that showed they spent >150% more time looking at Bing ads compared to Google ads during the search process.

Is it not possible, or even plausible, the reason users are looking longer on the ads is that its a new unfamiliar design. Average user's brain knows where the ads/results are in Google and hence look at the relevant results. In Bing they are not used to, so they look longer in the "wrong place".

The real question: is any of these news on Bing worth investing in? MSFT marketcap is 198bn and P/E 12 with negative earnings growth. GOOG marketcap is 132bn P/E 23 with earnings growing 11%. MSFT is old and tired relying on past glories. Google is a teenager trying to find its way. Who do you bet on, if either?

U.S. Dollar: Best House in a Bad Neighborhood?

This seems like a very North American point of view. Looking at it from Europe, the GBP is indeed been hung out to dry by the Bank of England and Mr Brown. The strength of a currency is a vector of (i) relative interest rates (EUR wins hands-down) (ii) GDP performance expectations (EUR wins marginally) (iii) market psychology (USD wins, for now). Once fundamentals kick-in EUR will win the day. This will be at the peril of EUR exporters, however this will move the EUR past the USD as the global reserve currency, which is what the EU and ECB are targeting.

Europe, like China, doesn't play by the anglo saxon rule book, which always confuses North Americans. Europe doesn't need a fiscal stimulus like the US, because there is one built-in. This has limited GDP grown in the last 10 years, but will now prevent a collapse, taking place in the US at present. Europe doesn't need zero interest rates, because price stability is medium/long term more important in the European context than risk of deflation. European consumers are not as dependent on debt (equity release mortgages, credit cards, car loans etc) and so will continue to tick-over albeit at a slower pace. Europe is indeed in a tough spot, but nothing compared with the US difficulties.

Apple Analyst: Tablet More Logical than Netbook

Logically the new device will be larger than the iPhone and smaller than the Air. The Air is as small as Apple computers will go (the Air is for Apple a "netbook"). The iPhone is as big as a phone/PDA can be. The Newton was too big a PDA and too small as a computer. Don't see what the new thing is, as much I would like to have one (whatever it is)!

From Russia With Bitterness

A few points to make to this rather whiny rant:

1. Emerging markets have higher risks and returns than evolved markets. You got in with high return expectations at the wrong moment.

2. Your comments are neither specific nor particularity accurate. Yes, natural resources companies of strategic value have been part nationalised during the last decade. The main reason is that, using your vocabulary, the assets where being raped in the 1990s. Overproduction caused dwells to be destroyed, no new investment went in to develop replacement fields etc.

3. I would hang on to Gazprom, Lukoil stock. I assume its one of these, since amature investors only have access to these two Russian oil stocks via ADRs listed on NYSE. The Russian market was destroyed in the crash at the end of 2008. They will recover when the extreme risk averseness abates and fundamental kick in.

P.S. KGB is called FSB nowadays. I suggest you update your dictionary if you are expressing opinions about a topic.

The End of the U.S. As We Know It: Tracking the Dollar Downward

The Treasury market has got a whiff of the looming inflation, in Bloomberg: www.bloomberg.com/apps...

Inflation will start small and accelerate when the scale of what has been going on since last September is realised. Printing of money of unprecedented levels, which would even make a banana republic proud. The people who believe in the deflation story are so wound up in the US of A being "different" from other countries and the USD being forever "special" that the are up for a rocky ride. Look at history - the US economy is only the biggest by 2008 measures. Same situation as the UK and the Sterling of a by-gone era.

Replacing funny money (derivatives) with Monopoly money (the "new " USD) is moving the bubble on. Eventually it will burst, as all bubbles always have.

Interesting theory of the US of A breaking up, although unlikely. Texas is the biggest benefactor from a break-up, so perhaps the Bush administration engineered this current situation? Why does "pro small government", "we hate Washington", Texas Republicans run a HUGE Federal deficit? Make it bust and stop being controlled by it!

As for gold - its been a precious metal for millenia. Our fallacy, as many-many times in history, is that things are "different" now. Gold is a commodity, yes, but it also a valuable commodity. There is nothing "safe" out there anymore - its like a world war situation. What (else) do you buy to protect you little wealth as an individual?

WSJ Weighs in on Peter Schiff

For people that don't like Peter, but agree with his world view, might find this analysis interesting by Soros about 2008. Seems awfully similar?


THE SOROS INVESTMENT YEAR:

Positions I took were too big for ever more volatile markets

Although I positioned myself reasonably well for what was coming last year, one thing I got wrong cost me dearly: there was no decoupling between markets of the developed and developing worlds.

Indian and Chinese stocks were hit even harder than those in the US and Europe. Since we did not reduce our exposure, we lost more money in India than we had made the year before. Our Chinese manager did better by his stock selection; we were also helped by the appreciation of the renminbi.

I had to push very hard in my macro-account to offset both these losses and those incurred by our external managers. This had its own drawback: I overtraded. The positions I took were too large for the increasingly volatile markets and, in order to manage my risk, I could not go against the market in a big way. I had to try to catch minor moves.

That made it difficult to maintain short positions. Although I am an experienced short-seller, I got caught several times and largely missed the biggest down-draught, in October and November.

On the long side, where I stuck to my guns, I lost an enormous amount of money. I was impressed by the potential in the new deep-water oilfield in Brazil and bought a large strategic position in Petrobras, only to see it decline by 75 per cent at one point in time. We also got caught in the developing petrochemical industry in the Gulf.

We did get out of our strategic long position in CVRD, the Brazilian iron ore producer, in time for the end of the commodity bubble and shorted the other big iron ore groups. But we missed an opportunity in the commodities themselves – partly because I knew from experience how difficult it is to trade them.

I was also slow to recognise the reversal of fortune for the dollar and gave back a large portion of our profits. Under the direction of my new chief investment officer, we did make money in the UK, where we bet that short-term interest rates would decline and shorted sterling against the euro. We also made good money by going long on the credit markets after their collapse.

Eventually I understood that the strength of the dollar was due not to people choosing to hold dollars but to their inability to maintain or roll over their dollar obligations. In a very real sense the strength of the dollar, like the fever associated with sickness, was a measure of the disruption of the financial system. This insight helped me to anticipate the downturn of the dollar at the end of 2008. As a result, we ended the year almost meeting my target of 10 per cent minimum return, after spending most of the year in the red.

Dollar Could Be Headed to 13 Year Low Against the Yen

Check out the EUR as well, the worlds next reserve currency after the USD falls off a cliff when it becomes apparent that you cannot just print new money to get out of your debts.