灌水贴

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1. Bond dropped. Mortgage rate is going higher.

Why focus on treasures? Yield of treasures reflects the expected discount rate because it is supposedly of no risk of default. The gauge of risk-appetite would be the spread between commercial papers and treasures. The gauge of confidence would be the size of outstanding commercial paper.

2. oil dropped (oil inventory down, gasoline inventory down, distillate stockpile up)

Typical sell-on-news activity --- sign of distribution.

3. gold dropped

Gold is losing the halo of being the “ultimate inflation hedge”

4. stock market up

Stock market is perceived to be 6 mo ahead of economy, so economy will be up in 6 mo.

 

Do you think this setup is good or bad for the stock market?

Yes.

Do you think this is technical or fundamental?

Fundamental

Do you think inflation is a major risk or recession is?

Inflation, because the recession, if there is any, would be shallow (not sure whether it’s short, though), provided inflation is tamed.

How would characterize today's stock market?

Rational

Are you willing to buy financials or material sector when you see an overall market opportunity?

Many financials are good value play if one is careful enough. Materials might be overheated along with other commodities.

ybgx

jsl

1. Bond dropped. Mortgage rate is going higher.

Why focus on treasures? Yield of treasures reflects the expected discount rate because it is supposedly of no risk of default. The gauge of risk-appetite would be the spread between commercial papers and treasures. The gauge of confidence would be the size of outstanding commercial paper.

what can you infer from these bond market, mortgage rate and commercial paper about inflation/fed rate expectation and risk.

2. oil dropped (oil inventory down, gasoline inventory down, distillate stockpile up)

Typical sell-on-news activity --- sign of distributiont 

Sell on news most of the time is short term effect. Did we see the sentiment fundamentally changed?

3. gold dropped

Gold is losing the halo of being the “ultimate inflation hedge”

Do you believe gold will still be a good inflation hedge. If not, what else will be?

4. stock market up

Stock market is perceived to be 6 mo ahead of economy, so economy will be up in 6 mo.

This is a little too early to say. I am still waiting for more evidence.

Do you think this setup is good or bad for the stock market?

Yes.  except that the bond  market  will put on some short term pressure.

Do you think this is technical or fundamental?

Fundamental

Do you think inflation is a major risk or recession is?

Inflation, because the recession, if there is any, would be shallow (not sure whether it’s short, though), provided inflation is tamed.

agree, but I feel that the inflation may not make a real dent on the stock market. Nobody will be happy about it though.

How would characterize today's stock market?

Rational  and  uncertain

Are you willing to buy financials or material sector when you see an overall market opportunity?

Many financials are good value play if one is careful enough. Materials might be overheated along with other commodities.
Financials will become value stocks, but it will take them more time to recover. Material will start to oscillator at a relatively high level.

还在发呆

Sell on news most of the time is short term effect. Did we see the sentiment fundamentally changed?

 

There are signs suggesting that the sentiment is changing. A) it is reported that US oil demand is contracting, B) Government starts to probe oil future trading, C) it is reported that countries are considering reduce gas subsidies.

 

Do you believe gold will still be a good inflation hedge. If not, what else will be?

 

I think all types of commodities are good inflation hedge, but the timing is critical. It comes fast and goes faster. My personal view is that because inflation expectation is ebbing, so gold is losing its halo, so do all other commodities. There will be no need for yet another inflation hedge when there is no inflation (expectation).

 

This is a little too early to say. I am still waiting for more evidence.

 

Already more than two months. Speculators buy on rumors. Bag holders buys what speculators sell on news. Evidence shows what the past was. Nobody is sure the trend won't make a u-turn in future. Queueing theory says, the long the time interval, the larger the probability that a new customer comes.  

 

Except that the bond  market  will put on some short term pressure.

 

Agree. A side note is that there is about 360B sideline money (in money-market fund). Their destination is much more important.

 

I feel that the inflation may not make a real dent on the stock market. Nobody will be happy about it though.

 

Yes, inflation (solely) will not make a real dent on the economy, either. It does make things feel worse with recession or slowdown.

 

Uncertain

 

Cannot agree more.

 

Financials will become value stocks, but it will take them more time to recover. Material will start to oscillator at a relatively high level.

 

Yes. Short term player may prefer materials over financials.

 

Disclaimer: I'm strongly bullish biased.

jsl

原帖由 还在发呆 于 2008-6-1 01:48 发表 About bond rate, this week's Barron's column on current yield offers deep insights.   Monday, June 2, 2008    CURRENT YIELD     A Perception-Led SelloffBy R ...

Good article. I saw change in bond market early last week and it became more obvious on Thursday, this is why I brought up the question. I was thinking of entering some positions at TLT 90, but I hold off on that due to this new developement. The target moved to 87-88 for a mid-short term trade. I feel that it started with fundamental and turning into technical right now. With the commodity price pulled back a little, the treasures still sold off. In other words, the inflation concern has not abated for long term. For short term there might be a pause so that everybody can take a breath and very likely suffer again. However, the concensus is that using commodity trades to hedge inflation is becoming more risky.

We also noticed that the financials have no trouble raising billions for selling parts of the companies with discounts and lucrative terms. It made the bankrupcy risk lower, at leas perceptually, at the cost of the existing stock holders. Then, commercial bond price should go up. Not seeing that.

The global bond sell off may indicate one of the two cases or both: inflation triggered asset reallocation which may also explain some of the recent stock rebound (kind of short covering); higher risk on bonds due to pessimistic economic views and T-bills are just the collateral damage given the further rate cut out of the picture.

The worst senario for the stock market is that the sideline money trickled in which may sustain the stock market for 2 month but couldn't save the economy, then there will be another severe sell off.

One thing I disagree with the article is that the 15-30 yr mortgage rate did jump on Thursday.

jsl

Due to heavily manipulated CPI number, TIPS have lost some of its power as inflation protection instrument. At least, I am not going to use it for my majority inflation hedge.

Outstanding commercial paper is definitely a good number. I didn't track its history, is it possible that the current rebound is more like a snap back from early oversold.

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Quoted from another Barron's article of this week.

 

If you are a bond holder, you want to be ahead of a recapitalization. If you are an equity holder, you always want to come in after. When people have been pushing the financial sector, they haven't made the distinction between what is good for the bondholder and what is good for the equity holder. The equity holder wanted to buy emerging markets after they recapitalized in the late 1990s, U.S. corporates after they recapitalized in 2002 and 2003 on the back of Enron, WorldCom, etc. The timing is critical. For the bondholder, it's the other way around because a recapitalization lowers risk and therefore brings in spreads. And the people who are diluted are equity holders.

 

Because recapitalization just happend in financials, the commercial paper price may have already gone up (a proxy for this is that CDX IG drop from 200 to 100 as mentioned in current yield).  And now it's the turn of equity.

 

360B sideline money is the number of May, they are still at sideline.

 

It is said that mortgage rate is peged to 15 - 30 year treasures (plus a fixed spread). This may explain why mortgage rate also jumped.

还在发呆

原帖由 jsl 于 2008-6-1 03:14 发表 Due to heavily manipulated CPI number, TIPS have lost some of its power as inflation protection instrument. At least, I am not going to use it for my majority inflation hedge.Outstanding commercial pa ...

 

commercial paper is not largely traded on a secondary market as stock, so i think there is no market maker to serve as liquidity provider, thus i think there is less technical movement there.

jsl

got it. Thanks!

原帖由 还在发呆 于 2008-6-1 03:18 发表 Quoted from another Barron's article of this week.   If you are a bond holder, you want to be ahead of a recapitalization. If you are an equity holder, you always want to come in after. When pe ...

jsl

add a link for related discussion
http://www.hutong9.com/viewthread.php?tid=13378&extra=page%3D1&page=2

jsl

扔个砖头

 

这里TA高手很多，也很愿意给大家指教，为什么青蛙们（老青蛙除外）总是不得要领呢？

 

看图 要看变化。要看到 有破有立。要无中生有。

还在发呆

原帖由 还在发呆 于 2008-6-1 03:18 发表 Quoted from another Barron's article of this week.   If you are a bond holder, you want to be ahead of a recapitalization. If you are an equity holder, you always want to come in after. When pe ...

 

看来还要有一轮recapitalization。上一轮大家都用preferred stock，现在S&P发话了，超过limit了，不能这么用了。昨天S&P cut financial firms rating也是因为这个原因，直接导致大盘跌。下一轮大家都要用common stock了。在此之前，买financial firm的股票还是很危险的，因为有股权被大规模稀释的可能性。

jsl

原帖由 jsl 于 2008-6-2 23:28 发表 扔个砖头   这里TA高手很多，也很愿意给大家指教，为什么青蛙们（老青蛙除外）总是不得要领呢？   看图 要看变化。要看到 有破有立。要无中生有。

 

上回书说到“有破有立”

 

S&P

今天的大阳棒破了头肩(短期看来），立了一个小W，但仍可能是kiss bye the previous lower trendline. Anyway, today's event is going to delay the downtrend if there is any. 我母鸡

jsl

Bears had a terrific month since last OE day. I did OK too: collect some premium on oil options, SDS is just a couple bucks shy of my target. long term positions in metal and oil stocks didn't do much damage.

 

liquidity: the whole market is again in a deleveraging phase, because it is more clear that the economic will be in trouble for a much longer time. If inflation had been calc in the right way, we should have already seen a negative GDP growth

 

inflation: Shortly after emerging markets inflation spikes, we should see some easing of inflation in US. Price can stay high, but we are finally at the point that recession concern meet inflation expectation with equal power.

 

equity: I am still looking at 1200 level of S&P, though equities are not expensive at all. We will stay around 1300 for another month. Financial can dip further, then that's it.

 

bond: looks like interest rate should only go upside. bond price may dip a bit more and then should rally as stock market sellof. 87-88 is my entry target on TLT for midterm holding.

 

oil: oil should come back to 100, the question is when. Speculators are not in good shape now, for sure.

 

Fed: I sail a long while ago, that Fed has to swing its only weapon (well, Fed create more earlier this year). I won't be surprised to see rate hikes later this year if inflation worsen, though unlikely.

 

currency: $ will move around this level. As other currencies lose their strength, $ will recover more slowly.

 

credit: Since last Aug, there hasn't been much real defaltion of the bubble. The process just began. Does this mean we are halfway through? probably still early.

 

 

Plan: I will stay hedged or short biased while S&P above 1260. start to remove hedge near 1230, buy around 1200.

 

bigbadwolf

原帖由 jsl 于 2008-6-20 20:55 发表 Bears had a terrific month since last OE day. I did OK too: collect some premium on oil options, SDS is just a couple bucks shy of my target. long term positions in metal and oil stocks didn't do ...

 

谢谢分享!

jsl

Just to clarify that the above is my long term view. Don't let it influence your short term trading plan. The current oversold situation does provide a short term buying opportunity. Personally, I like to buy 1% below Friday's close, maybe I am too conservative

jsl

I didn't have time to read all the economic news in detail, but just from headline news, I felt that the slow growth, deteriorating job market were taking its bigger toll on the economy. The wealth buffer created in the last few years was probably exhausted to keep the market afloat so far. However, I believe that all these are needed to deflate the credit.

 

Since a quick recovery is out of the picture, investor, not traders, are unlikely to jump in due to unfavorable risk reward ratio. This sentiment might bring the market to my target sooner than I thought.

 

The reasons for oil to go higher are becoming more and more unreasonable. Even so, the chance of breaking 150 is pretty high, that should be the head of the top.

 

Everything seems to be setting up for a year end rally, before that, the sky can be dark and intimidating.

jsl

I see a very short term buy opportunity.

I lower my view of S&P to 1150, but I will stick my trading plan.

jsl

Currently, the trading pattern is more or less similar to that of March, however, this bear rally will probably be less than half of the previous one, if it starts from here, and will be short lived too. As the indices approaching my target, it is time to think about the fundamentals of the economy again. It is not about how bad it is now, it is about the evaluation of resiliency. So the questions are:

 

What do you think about the bonds market.

Is it good to hold gold

is it good to reenter commodities

Where will the currencies goes

Do you think Fed rate or ECB rate will be important

How bad the unemployment rate will be

 

有事，一会再灌

jsl

I really don't think interest rate matter that much now. Risk dominates, no spot of the economy is overheating. Oil is pretty high, but is not killing. More importantly, the inflation expectaion started to drop. So far, the Fed is doing ok, ECB will make a mistake if it hikes the rate.

 

As I said, bond rises as stock drops. A little sooner than I expect, but not surprised.