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GaltMachine

GaltMachine
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  • Fed action Wednesday — indicating it would continue stimulus for as long as it takes to get the unemployment rate down to 6.5% or below — has reignited debate about the Bond Bubble, says CNBC's Bob Pisani. The question is simply a matter of when, not if, according to Carlyle's David Rubenstein: "The greatest fortune made in the next five years is probably going to be made by some group or individual who figures out when the interest rate market will turn." [View news story]
    bbro,

    How do you sell naked option positions on bonds? Is there a manager that does this kind of thing?

    Way out of my experience but sounds interesting.

    What's wrong with TBT?

    Thanks.
    Dec 16, 2012. 11:45 AM | Likes Like |Link to Comment
  • With GDP growth tepid due to low private and business demand, "the case for expansionary fiscal measures, even if they increase the deficit temporarily, is compelling," says ex-Clinton economic adviser Laura D'Andrea Tyson. "Spending in areas like education and infrastructure...have large multiplier effects on the current level of output and employment and strong returns over time." [View news story]
    Apparently, the proof is in the spreadsheets.
    Dec 16, 2012. 11:41 AM | Likes Like |Link to Comment
  • Fed action Wednesday — indicating it would continue stimulus for as long as it takes to get the unemployment rate down to 6.5% or below — has reignited debate about the Bond Bubble, says CNBC's Bob Pisani. The question is simply a matter of when, not if, according to Carlyle's David Rubenstein: "The greatest fortune made in the next five years is probably going to be made by some group or individual who figures out when the interest rate market will turn." [View news story]
    This argument has been made just about every year since ZIRP started. I specifically recall Scott Grannis' call for a 4% plus 10 year in 2010 so there is a reason why this trade is sometimes called the "widowmaker".

    TBT, the ultrashort 20+ treasury ETF should be the play of choice for this position but when you look at that long term chart it shows how many people have been killed by this trade. Peaked out at 290 in 2008 and has dropped ever since to its current level of just over 60.

    For bondholders this could act as an insurance policy to hedge your interest rate risk. It is so tempting.
    Dec 15, 2012. 11:03 AM | 1 Like Like |Link to Comment
  • Nov. Industrial Production: +1.1% vs. +0.3% expected, -0.4% prior. Capacity utilization 78.4% vs. 77.8% prior. [View news story]
    Nice rebound on the capacity utilization!
    Dec 14, 2012. 09:27 AM | Likes Like |Link to Comment
  • Nov. Consumer Price Index: -0.3% vs. -0.2% expected, +0.1% prior. Core CPI +0.1% vs. +0.2% expected, +0.2% prior. [View news story]
    bbro,

    What's the trendline for the last 3 mths?

    What do you think of as more informative the y/y or the recent qtr?

    Thanks
    Dec 14, 2012. 08:52 AM | Likes Like |Link to Comment
  • U.S. Recession Risk Jumps 20 Percent In November [View article]
    Tack,

    I think his conclusion pretty much makes the same point you are making:

    "There is no question that the risk of an impending U.S. recession increased significantly in November, but the model forecasts are still below the 30%-40% warning thresholds. In addition, the data was affected by hurricane Sandy, which means the slowdown could be temporary. Fear of the fiscal cliff could also have influenced the data."
    Dec 14, 2012. 08:51 AM | Likes Like |Link to Comment
  • Nov. Consumer Price Index: -0.3% vs. -0.2% expected, +0.1% prior. Core CPI +0.1% vs. +0.2% expected, +0.2% prior. [View news story]
    bbro,

    Getting there by deflationary pressures is not a positive.

    However, the real positive is more disposable income so this does bode well for the future. This should help lead a growth pick up from the current snail's pace.
    Dec 14, 2012. 08:47 AM | Likes Like |Link to Comment
  • Chinese shares surge 4.3% after the flash HSBC PMI rises to a 14-month high of 50.9 in December from 50.5 in November, adding to recent other data showing that the economic turnaround is gaining momentum. HSBC says the growth is mainly driven by domestic demand, and cautions that "the drop of new export orders and the downside surprise of November exports growth suggest persisting external headwinds." (PR[View news story]
    This is the second amazing broad market call (buy Spain early in the year, short AAPL, buy NatGas) Jeff Gundlach has made in the last 6 mths. The guy looks like a genius.
    Dec 14, 2012. 08:31 AM | Likes Like |Link to Comment
  • Fiscal Cliff: How Bad Would It Be? [View article]
    Puck,

    I'm not sure if proof is necessary as it is rather clear but nonetheless, Christina Romer, Obama's Economic chair, concluded the following:

    http://bit.ly/TVN7mJ
    Tax Increases Reduce GDP
    "Tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent."

    How do changes in the level of taxation affect the level of economic activity? The simple correlation between taxation and economic activity shows that, on average, when economic activity rises more rapidly, tax revenues also are rising more rapidly. But this correlation almost surely does not reflect a positive effect of tax increases on output. Rather, under our tax system, any positive shock to output raises tax revenues by increasing income.
    Dec 12, 2012. 09:53 PM | Likes Like |Link to Comment
  • Bernanke: I think it's fair to say we have overestimated the level of growth during the recovery, he says in response to a question on the Fed's forecasting track record (wasn't the original end date of ZIRP supposed to be 2013). Nevertheless, the Fed will continue to use the same models to justify continued ZIRP, and the now $85B/month in asset purchases. [View news story]
    Must be the same models they use to forecast man-made global warming ;)
    Dec 12, 2012. 04:35 PM | 1 Like Like |Link to Comment
  • More from the Fed: The FOMC has adopted economic thresholds for when it would commence tighter policy. The fed funds rate will remain at exceptionally low levels as long as unemployment remains above 6.5% and inflation is expected to be no more than 50 basis points above the 2% target rate. [View news story]
    Tell it to stop :)
    Dec 12, 2012. 12:55 PM | 5 Likes Like |Link to Comment
  • It's more QE∞ as the Fed launches an open-ended $45B/month Treasury purchase program to replace the expiring Operation Twist. This will be more expansionary than The Twist as that program included the sale of short-term Treasurys to go along with the purchase of longer-dated paper. The other QE∞ - the Fed's open-ended purchases of $40B/month of MBS - continues. [View news story]
    Great quote, especially the last sentence, from James Montier of GMO courtesy of Pragcap:

    "Essentially, Bernanke’s first commandment to investors goes something like this: Go forth and speculate. I don’t care what you do as long as you do something irresponsible.

    Not all of Bernanke’s predecessors would have necessarily shared his enthusiasm for recklessness. William McChesney Martin was the longest-serving Federal Reserve Governor of all time. He seriously considered training as a Presbyterian minister before deciding that his vocation lay elsewhere, a trait that earned him the beautifully oxymoronic moniker of “the happy puritan.” He is probably most famous for his observation that the central bank’s role was to “take away the punch bowl just when the party is getting started.” In contrast, Bernanke’s Fed is acting like teenage boys on prom night: spiking the punch, handing out free drinks, hoping to get lucky, and encouraging everyone to view the market through beer goggles."
    Dec 12, 2012. 12:47 PM | 1 Like Like |Link to Comment
  • It's more QE∞ as the Fed launches an open-ended $45B/month Treasury purchase program to replace the expiring Operation Twist. This will be more expansionary than The Twist as that program included the sale of short-term Treasurys to go along with the purchase of longer-dated paper. The other QE∞ - the Fed's open-ended purchases of $40B/month of MBS - continues. [View news story]
    So no more "sterilization"?

    Our money will multiply like bunny rabbits in the wild.
    Dec 12, 2012. 12:41 PM | Likes Like |Link to Comment
  • Probably not great news for global trade, the Baltic Dry Index plunges 8.2% to 826 this morning, the biggest drop since 2008. Shippers already struggling to hang on include: EGLE, ESEA, DAC, DHT, TNP[View news story]
    Interestingly this could suggest that inflation will be tamed by excess capacity.
    Dec 12, 2012. 09:14 AM | Likes Like |Link to Comment
  • Redbook Chain Store Sales: +2.2% Y/Y vs. +2.1% last week. Consumers are putting off there purchases currently, hinting at better sales leading up to Christmas. [View news story]
    "Consumers are putting off there purchases currently, hinting at better sales leading up to Christmas."

    How do you reach that conclusion?
    Dec 11, 2012. 09:21 AM | Likes Like |Link to Comment
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