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GaltMachine

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  • More on the BAML fund manager survey: The tailwind of low equity exposure is over, with hedge funds taking their long stock bets to the highest level since August 2006. More: Just 12% of fund managers are overweight cash, the lowest level in 9 months. A net 11% see improving corporate profits next year, a 22 point swing from October, when 11% saw declines ahead. (PR[View news story]
    They act like a bunch of yoyos. And they are supposed to be the pros.
    Dec 18, 2012. 01:00 PM | 2 Likes Like |Link to Comment
  • Long-term Treasury yields accelerate their move to the upside in the days following the Fed's open-ended promise to spend $45B/month keeping a lid on them. The 10-year yield is 20 basis points higher in December to 1.80%. TLT -0.7% today and now lower YTD. [View news story]
    And the reason for the purchases was to lower rates!

    Interesting perhaps the market is front-running the dumb buyer.
    Dec 18, 2012. 12:12 PM | 2 Likes Like |Link to Comment
  • The Selling In PIMCO's High Income Fund Continues [View article]
    Tack,

    Which of these do you like?

    Don't most of them use significant leverage?

    Any opinion on MUB & NUV?

    I am very interested.

    Thanks
    Dec 17, 2012. 03:04 PM | Likes Like |Link to Comment
  • Weighing The Week Ahead: Time For Clarity On Key Market Issues? [View article]
    "When you read the entire article, you understand that the story is mixed. The "young firms" are actually optimistic. A loyal reader also pointed me to this story, suggesting that the survey results might reflect partisanship more than business plans."

    A partisan explanation to explain a partisan event doesn't do much to explain this event.

    Sometimes the simple answer is the right answer. Small business believes that their taxes will rise and their costs will go up because of Obamacare so naturally they became less optimistic after the President won reelection since both of these events will now occur post January.

    It is hard to be more optimistic from an economic viewpoint unless you believe that higher taxes and costs are a net benefit as a business owner.

    Whether this pessimism translates to meaningful economic behavior is not clear to me so I don't know if this is just a blip or something more meaningful but apparently even Ben Bernanke seemed concerned by it.
    Dec 17, 2012. 01:50 PM | Likes Like |Link to Comment
  • Weighing The Week Ahead: Time For Clarity On Key Market Issues? [View article]
    Jeff,

    "The US economy does not depend upon government stimulus for growth."

    The argument that has been made by James Montier and Mauldin and others is that fiscal deficits by definition find their way into corporate profits and therefore absent offsetting growth profits in aggregate will fall.

    Here is the article from James Montier if you are interested:

    http://bit.ly/RA4v3w

    Not sure if you follow Modern Monetary Realism (MMR) but I think Cullen Roche, http://www.pragcap.com, has the best explanation of how our monetary system works and the implications of changes in fiscal policy.
    Dec 17, 2012. 12:53 PM | Likes Like |Link to Comment
  • Weighing The Week Ahead: Time For Clarity On Key Market Issues? [View article]
    Jeff,

    Assuming there is a deal, have you given any thought to quantifying what the total tax increases will be? The amount of spending cuts/fiscal restraint if any?

    I find it fascinating that the idea of raising taxes and cutting spending in a weak economic environment isn't actually more concerning to market participants.

    My baseline is that there will be tax increases starting with Obamacare and adding on from there. So assuming you believe in Romer's tax work - in theory GDP will be reduced by a factor of 2-3 times the amount of the tax increase.

    That seems problematic to me but perhaps the worries about tax increases will prove unfounded. I personally doubt it.
    Dec 17, 2012. 10:30 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]
    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
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