Has JPMorgan Already Unwound Its Losing Trade?

Sunday, May 13th, 2012

On Thurs­day night, after it became clear that JPM has lost at least $2 bil­lion on what is most likely an IG9 Index skew (Index less Intrin­sics) trade gone hor­ri­bly wrong, we first pre­dicted (and promptly were pig­gy­backed on by other var­i­ous finan­cial blogs) that based on var­i­ous fac­tors, there is about $3 bil­lion more in the pain trade com­ing in JPM's gen­eral direc­tion, once IG9 blows out to catch up to a fair value not sup­ported by JPM(artingale's) infi­nitely back­stopped prop desk. Sure enough, by clos­ing on Fri­day, IG9 (and the entire IG curve), had blown out wider, by a whop­ping 10 basis points: one of the biggest intra­day moves in nearly a year. In P&L terms, by close of Fri­day, all else equal, JPM had lost another $2–3 bil­lion on the same trade it had lost over $2 bil­lion since the begin­ning of April. We expect to hear con­fir­ma­tion of this shortly. Which how­ever brings another ques­tion: has JPM closed out its los­ing trade, or is the entire move in the index (and to a far less extent in the intrin­sics) due to hedge funds who have pig­gy­backed on the "crush JPM" trade? The truth is we don't know, and until we get the lat­est weekly DTCC data on CDS notional out­stand­ing we won't know. How­ever, our gut feel­ing is that it would have been vir­tu­ally impos­si­ble for JPM to lift every sin­gle offer in unwind­ing a $100+ bil­lion notional posi­tion with­out send­ing the entire IG curve mul­ti­ples wider. Which is why keep a close eye on the IG9 10 Year skew — this is where, as ZH first noted, the action is. If the skew soars, it is likely that the run­away train will keep going and going, until JPM issues a for­mal announce­ment that the firm is fully out of the trade, together with a final tally of its losses, which will prob­a­bly be dou­ble the reported loss as of Thurs­day. At which point IG9/18 will see an epic ripfest as those short risk will scram­ble to cover.

As the chart below shows, as of Fri­day, the index was still 7 bps rich to intrin­sic, how­ever the spread col­lapsed by nearly 50% from the day before. If and when the skew goes pos­i­tive, would be our all clear to get out of dodge. Until then, JPM will likely see far more pain, even if, tech­ni­cally, it won't, fol­low­ing rumors its entire Lon­don CIO desk may be now in jeop­ardy, mean­ing it will be up to the mid­dle office to unwind, at an even greater loss to the firm. And com­pound­ing the issue will be the gen­eral risk off nature in cap­i­tal mar­kets over the next few days, fol­low­ing a plethora of Euro­pean sov­er­eign bonds, and, oh, the lit­tle issue of the Euro­zone poten­tially falling apart in a few weeks. All of which will likely see the con­tin­ued widen­ing in var­i­ous IG points, until JPM issues at least some more color on its cur­rent involve­ment in the trade.

IG9 — 10 Year Skew: ripfest, but still a ways to go:

Some­one else who believes that the trade is now over, is Peter Tchir. We don't quite agree, but we do believe IG9 (and 18 by proxy) longs should be care­ful — very soon cov­er­ing an IG long CDS posi­tion may well be the pain trade.

From Peter Tchir of TF Mar­ket Advisors

The Coolest Trade I Ever Saw!

On the coolest trade I ever wit­nessed, I was an unwit­ting par­tic­i­pant. In the end, I don’t know if any of it is true, but this is the story I saw and was a part of, and the firm’s P&L seemed to back it up.

I only men­tion it now, because I can’t help but think Jamie Dimon is pulling some­thing sim­i­lar.  With Sar­banes Oxley and every­thing else, I’m not sure he could be, but there is a nag­ging doubt in my mind about “pil­ing on” being the right trade.

I also can’t help but remem­ber back in 2008, where Citadel had a con­fer­ence call.  That was unusual enough.  More unusual was how easy it was to get the num­ber.  Ken went on about the basis (long cor­po­rate bonds vs short CDS).  I remem­ber lik­ing the basis at that time, even had on a tiny bit, but I wanted to buy because I fig­ured it was at ridicu­lous lev­els, the fund­ing the Fed was sup­ply­ing would help the mar­ket, and by the time Ken was so openly talk­ing about it, you had to know the unwind was almost over.

So, any­ways the trade I remem­ber as the coolest trade was way back in the early 2000’s.  I was at DB at the time doing some HY CDS, Syn­thetic CLO’s, Total Return Swaps and a few other things that most peo­ple hate.  But the big story at the time was talk that the gov­ern­ment would stop issu­ing the long bond.

The bond was going up almost daily.  There was talk about the scarcity and that it could go a lot higher in price.  The rumor was that DB was short.  It started as a small rumor, but got around.  One morn­ing, the long bond opened up more than a point.  It kept grind­ing higher.  It didn’t mat­ter who you were at DB, you were being asked by the street, by clients, by com­peti­tors about the trade.  Every­one thought DB was short and get­ting killed.  The size was sup­pos­edly large (by the stan­dards of the day which are a frac­tion of what they are now).  I remem­ber being ner­vous about my bonus.

What the heck was going on?

Then it hap­pened.  Edson Mitchell or his assis­tant came out of “mahogany” row and called the head of rates (who over­saw trea­suries) off the desk.  Myself and count­less oth­ers were imme­di­ately on the phone and Bloomberg mes­sages telling peo­ple what just hap­pened.  Holy cr*p this must be bad.  The head of rates was called off the desk.  That NEVER hap­pens.  And it was not to cel­e­brate.  Wow.  The long bond spiked fur­ther, I think at one point it was up over 3 points – a huge move.  The rumors of losses were grow­ing by the sec­ond.  Peo­ple were won­der­ing if they should trade with DB.  The “usual histri­on­ics” that were blow­ing the sit­u­a­tion way out of all proportion.

Accord­ing to leg­end, and the P&L seems to have backed it up, the rates desk was actu­ally LONG trea­suries.  That extra 2 point gap made 100’s of mil­lions of dol­lars for the firm.  Whether they had ever been short, I don’t know, but they had turned the posi­tion and were now mas­sively long and prof­it­ing from the move.  How they didn’t just take the money  and be happy I will never know.  But to go through the cha­rade of call­ing the head of trad­ing off the desk and caus­ing an imme­di­ate spike that they sold into, has to be the sin­gle coolest trad­ing thing I’ve ever seen.

Be care­ful bet­ting against JPM and the trade they allegedly have on and allegedly still need to unwind and might allegedly lose a lot more money on.  I’m not say­ing this is a head fake and I haven’t rec­om­mended clos­ing the trades in TFMkts Best Ideas™ that ben­e­fit from the unwind, but I really don’t believe, that in spite of Sar­banes Oxley, we are get­ting the full story, and not pos­si­bly being played a bit.

Tags: Amp, Basis Points, Blogs, Bps, Chart Below Shows, Confirmation, Curve, Desk, Extent, Formal Announcement, Gut Feeling, Ig, Jpm, Losses, risk, Runaway Train, Soars, Tally, Thursday Night, Truth
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What Could Have Gone Wrong at JPM

Friday, May 11th, 2012

by Peter Tchir, TF Mar­ket Advisors

Well for once we don’t have to talk about Spain or Greece.

This is the end of syn­thetic CDO’s and may well be the end of CDS as an OTC prod­uct, but we have time to look at that later. There will be a lot of infor­ma­tion and mis­in­for­ma­tion out there.

For now, the key is what is this going to do for the markets.

As best as I can tell, they were gen­er­ally short High Yield risk. They were mostly short tranches, mostly in off the run, and had some curve trades on.

Against that, they were gen­er­ally long IG, mostly tranches, mostly IG9, and had some curve trades on.

The posi­tions, if we ever find out exactly what they were, are com­plex. At some level this dis­clo­sure has some­thing to do with mark to model. Gp

So HY17 is lower on the quar­ter. If they were short, they should have made some money? Strange and in any case, a rel­a­tively small move.

IG9 10 year is wider. Was out 15 bps since the end of the quar­ter, from 112 to 127.

To lose 2 bil­lion on a 15 bp move, that would be about 275 bil­lion of notional equivalent.

Scary, but some­thing very strange has gone on.

E-mail: tchir@tfmarketadvisors.com

Twit­ter: @TFMkts

Copy­right © TF Mar­ket Advisors

Tags: Bp, Bps, Curve, Disclosure, E Mail, Gp, Greece, Ig, Misinformation, Money, Nbsp, Otc Product, risk, Spain, Strange, Synthetic Cdo, Tf, Trades, Tranches
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Asset Class Performance (April 2012): Another Good Month for Bonds

Friday, May 4th, 2012

The bar chart below, cour­tesy of Scott Bar­ber of Reuters, shows the monthly per­for­mances of the prin­ci­pal asset classes.

“The “risk on/risk off” barom­e­ter moved back in the direc­tion of “risk off” dur­ing April, as U.S. 10-year Trea­sury secu­ri­ties turned in the best invest­ment gains (in U.S. dol­lar terms) dur­ing the month,” said Bar­ber. “The 2.8% jump in the value of the Trea­sury secu­ri­ties came despite the almost uni­ver­sal per­spec­tive on the part of pro­fes­sional investors that the 30-year bull mar­ket for bonds is finally sput­ter­ing to a halt and that even­tu­ally inter­est rates will begin to climb. Investors dis­played a clear bias in favor of assets that not only gen­er­ated income but also offered them secu­rity – in other words, bonds of var­i­ous kinds were the only major asset classes to end the month in the black.”

Source: Scott Bar­ber, Reuters, May 2, 2012.

Tags: 10 Year Treasury, April, asset class, Asset Classes, Assets, Barometer, Bias, Bonds, Class Performance, Dollar Terms, interest rates, Investment Gains, Principal, Professional Investors, Reuters, risk, Scott Barber, Treasury Securities, Universal Perspective
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Eric Sprott: Paper Vs Physical Gold

Friday, April 20th, 2012

While Eric Sprott obvi­ously has a mod­est axe to grind, his open and hon­est dis­cus­sion with Charles Bider­man on the dif­fer­ence between gold ETFs meth­ods of own­ing gold, so-called phys­i­cal vs paper gold, is note­wor­thy given the depth he goes into. After explain­ing the con­cerns of GLD, Pisani's put­ter­ings, and tax-related dif­fer­ences, Eric goes on to dis­cuss his and other phys­i­cal trusts and how he started down this route. The lat­ter end of the dis­cus­sion shifts from the prac­ti­cal­i­ties of own­ing 'sound money' or 'hard assets' to the the­sis for doing so — the debase­ment of fiat cur­rency and the print­ing press fanati­cism being exhib­ited glob­ally. Con­clud­ing with his thoughts on what could change this the­sis, he sees the great­est risk that "we come to our finan­cial senses" — a highly unlikely sce­nario given the domi­noes likely to fall should that occur.

Tags: Assets, Axe, Debasement, Dominoes, Eric Sprott, Fanaticism, fiat, Fiat Currency, Paper Gold, physical gold, Pisani, Printing Press, risk, Senses, Sound Money, Thesis, Trusts
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Those Catchy Spanish (Yield) Curves (Tchir)

Thursday, March 22nd, 2012

From Peter Tchir of TF Mar­ket Advisors

Span­ish Yield Curve

With ZIRP and LTRO it is hard to get a good read on the Span­ish yield curve and what any­thing means.

Span­ish 10 year yields have risen 9 days in a row, 5 year yields have moved higher 8 out of 9 days, and the 2 year has been much more mixed, until recently.

The 2 year yield is out 19 bps in those 9 days, but 18 bps of that move has occurred the last 2 days.  The 2 year bond fits the sweet spot of LTRO, is likely to be held by banks in non mark to mar­ket accounts, so it has been sta­ble, but it has even started to leak a lit­tle.  The move is small, almost triv­ial, yet with all the things work­ing to sup­port 2 year bonds, it is curi­ous that it is able to widen at all, let alone 18 bps in 2 days.

The 10 year yield is 48 bps higher, but the 5 year yield is 54 bps higher.  The curve is still steep, but we are start­ing to see yields mov­ing faster in the 5 year than in the 10 year.  In the past 5 days, the 5 year yields have under­per­formed the 10 year by 7 bps.  At the risk of mak­ing a moun­tain out of a mole-hill, this is worth watch­ing.  The move started with the entire curve steep­en­ing.  So the move was bear­ish, but more iso­lated to the long end.  The move is start­ing to impact the “belly” of the curve more.  In a nor­mal world, this small “flat­ten­ing” of 5’s/10’s would be easy to ignore, but in a world where the curves are influ­enced (manip­u­lated) by gov­ern­ment poli­cies that do every­thing pos­si­ble to keep the front end anchored, this move may mean far more than it nor­mally would.

We have been watch­ing Spain for almost 2 weeks as a poten­tial canary in the coalmine, and it seems in the past 2 days it has hit everyone’s radar.  I wouldn’t be sur­prised to see some ECB buy­ing to keep the move in check, but with a pretty bloated bal­ance sheet and a lot of dis­agree­ment over the abil­ity of the ECB to shield its bond hold­ing from restruc­tur­ing, they might not be so willing.

In an effort to dig deeper into Spain, while the 10 year will still be a focus, the “flat­ten­ing” and “front end” will be the next canaries as to just how bad this can get.  Small moves there are far more impor­tant than they seem because it means they are mov­ing in spite of low rates, ECB pur­chases, LTRO, t-bill auc­tions, etc.   It seems strange that small moves there could be the most impor­tant clue for how bad this can get, but when we first started notic­ing that Span­ish 10 year yields couldn’t hold onto gains on any day, it also seemed far-fetched to a lot of peo­ple that Span­ish yields would be in the spot­light again.

Pain in Spain is very neg­a­tive for the Euro.

Expect talk of PSI and debt restruc­tur­ing to increase.  There is only one way for sov­er­eigns to get their debt down quickly.  That is to pull a PSI and make banks and insur­ance com­pa­nies take the hit.  I would avoid Euro­pean bank shares here, as their equity mar­ket cap and abil­ity to absorb losses will be a tempt­ing tar­get for politi­cians who want to reduce debt and don’t want to waste a year mak­ing things worse, like Greece did.  This is espe­cially true with LTRO reduc­ing fund­ing concerns.

Tags: Balance Sheet, Banks, Bonds, Bps, Coalmine, Disagreement, ECB, Government Policies, Market Accounts, Mole Hill, Radar, Restructuring, risk, Spain, Spanish, Sweet Spot, Yield Curve, Yield Curves, Zirp
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The Emerging Market Growth Story Continues (ING)

Tuesday, March 20th, 2012

by Dou­glas Coté, ING

We have dis­cussed the pos­si­bil­ity, and risk, of a hard land­ing in China (growth slow­ing to less than 7%), but what has been going on in some of the other BRIC’s like India and Brazil? Right now India is in the midst of bud­get nego­ti­a­tions which would reign in its gross fis­cal deficit to 5.9% of GDP (total debt is around 50% of GDP). India’s GDP growth is expected to sub­side to 6.9% after two solid years of greater than 8% growth. A global slow­down as well as high oil prices have con­tributed to the decrease. How­ever, Indian finan­cial offi­cials expect a return to 9% plus growth in the future. Mean­while Brazil has just over­taken the U.K. to become the sixth largest econ­omy in the world. Brazil grew 2.7% in 2011 com­pared to U.K.’s mea­ger .8%. And with sub­stan­tial oil and gas reserves fuel­ing their exports, Brazil has their eye on num­ber 5. You can find some key sta­tis­tics about India and Brazil as well as other emerg­ing mar­kets on page 33 of the Global Per­spec­tives book.

Click on images below for PDF

Copy­right © ING Invest­ment Management

Tags: Brazil, BRIC, Budget Negotiations, Economy, Emerging Market, Emerging Markets, Financial Officials, Fiscal Deficit, Gas Reserves, GDP, GDP Growth, Global Perspectives, Global Slowdown, India, Ing, Ing Investment Management, Key Statistics, Midst, Nbsp, Oil and Gas, Oil Prices, risk
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Scott Minerd: "A Wide Range of Assets Are About to Make Large Gains"

Thursday, March 1st, 2012

Scott Min­erd, Guggen­heim Part­ners CIO, dis­cusses his long-term strat­egy, invest­ing for an asset bub­ble, the risk-on trade, and short­ing Trea­suries. Also, how best to imple­ment and apply the trend, with the Fast Money traders.

From CNBC:

“The world is being flooded with liq­uid­ity,” says Min­erd in a live inter­view on CNBC’s Fast Money. “Money is com­ing out of cen­tral banks around the world.” And he adds that the Fed­eral Reserve is com­mit­ted to keep­ing rates low for an extended period of time.

With so much liq­uid­ity chas­ing return, Min­erd thinks a wide range of assets are about to make large gains. “Over the next 2–3 years, it’s risk on,” he says. And he’s plan­ning to posi­tion as follows:

- Long High-Beta Equi­ties
– Long gold and sil­ver
– Long junk bonds
– Buy art & col­lectibles
– Short Treasurys

In the near term, that sounds good for your equity port­fo­lio –but if you have a longer time hori­zon, Min­erd also makes some trou­bling comments.

Tags: 3 Years, Art Collectibles, Assets, Central Banks, Cio, Cnbc, Federal Reserve, Guggenheim Partners, Junk Bonds, liquidity, Live Interview, Money Money, Period Of Time, risk, Term Strategy, Time Horizon, Treasuries, Treasurys
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Andy Lo: Managing Portfolios in Volatile Times (In-Depth)

Thursday, March 1st, 2012

MIT's Andrew Lo, “Finan­cial Thought Leader,” and the dean of Adap­tive Mar­ket Hypoth­e­sis, dis­cusses man­ag­ing your portfolio’s risk in volatile times with Con­nie Mack.

Tags: Connie Mack, Dean, Market Hypothesis, Mit, Portfolio, Portfolios, risk, Volatile Times
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Jeff Gundlach: Complete "Fall Of The [BLANK] Empire" Slideshow

Wednesday, February 15th, 2012

The defin­ing sound­bite from Jeff Gundlach's call Q&A: Regard­ing Bank of Amer­ica — "It is wise to avoid banks. Not sur­prised BAC has gone up — just like NFLX — just like Ital­ian bonds. Reduce risk right now, includ­ing, Bank of America."

While the star of multi-billionaire Bill Gross may or may not be fad­ing (the jury is still out on what the final out­come will be for the man who so far alone among his peers has dared to point out the lunacy in the Fed's actions), that of his far smaller and nim­bler peer Jeff Gund­lach of Dou­ble­Line Cap­i­tal has been ris­ing rapidly, and at last check has his fund's AUMs at over $25 bil­lion, a dou­bling in a few short months. Gund­lach is con­duct­ing his peri­odic web­cast live at 4:15pm East­ern (i.e., yesterday).

And by the title of the pre­sen­ta­tion, it promises to be quite interesting.

Now enjoy the Gund­lach slides in the leisure of your own unre­hy­poth­e­cated con­crete bunker, 50 feet below sea level.

"The decline and fall of the Roman Empire"

2–14-12 JEG Web­cast Roman Empire — FINAL

Tags: Bac, Bank Of America, Banks, Bill Gross, Billionaire, Bonds, Concrete Bunker, Decline And Fall, Decline And Fall Of The Roman Empire, Empire 2, Fall Of The Roman Empire, Feet Below Sea Level, Gundlach, Lunacy, Nflx, Peers, risk, Slides, Soundbite, Webcast
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CASSH: Five Countries That Offer Hidden Value (Infographic)

Tuesday, February 14th, 2012

Inter­na­tional invest­ments may involve risk of cap­i­tal loss from unfa­vor­able fluc­tu­a­tion in cur­rency val­ues, from dif­fer­ences in gen­er­ally accepted account­ing prin­ci­ples or from eco­nomic or polit­i­cal insta­bil­ity in other nations. Secu­ri­ties focus­ing on a sin­gle coun­try may be sub­ject to higher volatility.

Tags: Accounting Principles, Countries, Currency Values, Fluctuation, International Investments, Political Instability, risk, Volatility
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Barron's Confidence Index Takes a Worrying Turn

Thursday, January 19th, 2012

When report­ing on the unfold­ing of the credit cri­sis I often referred to the Barron’s Con­fi­dence Index. This Index is cal­cu­lated by divid­ing the aver­age yield on high-grade bonds by the aver­age yield on intermediate-grade bonds.

The dif­fer­ence between the yields is indica­tive of investor con­fi­dence. A ris­ing ratio indi­cates bond investors are grow­ing more con­fi­dent, in other words pre­fer­ring more spec­u­la­tive bonds over high-grade bonds. On the other hand, a declin­ing ratio indi­cates investors are demand­ing a lower pre­mium in yield for increased risk. That shows a wan­ing con­fi­dence in the economy.

Since hit­ting an all-time low in Decem­ber 2008, the Index was almost back to pre-crisis lev­els in Jan­u­ary this year as investors grew increas­ingly con­fi­dent. But that was when investors started focus­ing on sov­er­eigns that were start­ing to get into trouble.

Since the start of 2011 the Index has given up more than 40% of its gains. This puts us back at lev­els expe­ri­enced dur­ing mid-2008 – just prior to con­fi­dence falling off a cliff. Based purely on this chart, one has to con­clude that con­fi­dence remains fragile.

Source: Barron’s

Tags: Barron, Bond Investors, Bonds, Confidence Index, Credit Crisis, Crisis Levels, Economy, Investor Confidence, risk, Sovereigns
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Fed's Failure to Inspire: TrimTabs Shows Where the Real Money is Going

Friday, January 13th, 2012

As vol­umes this year in stock mar­kets remain sig­nif­i­cantly below last year's but high yield bond ETF inflows reach record highs, TrimTabs offers some con­text for the mas­sive rel­a­tive flows of real cash into check­ing and sav­ings accounts ver­sus stock and bond mutual fund and ETFs. Not-Charles-Biderman, oth­er­wise known as David Santschi of the now-infamous Bay Area back­drop, explains the incred­i­ble sta­tis­tic that in the first 11 months of last year investors poured more than eight times more money into check­ing and sav­ings accounts than into Fed-inspired risk assets in gen­eral. Even with rates ultra-low, the Fed's efforts to drive spec­u­la­tive flows is dwarfed by investors' aggre­gate sense of the real­ity of our ten­u­ous sit­u­a­tion as a mas­sive $889bn was poured care­fully into mat­tresses while a measly $109bn went into risk-worthy assets (includ­ing bonds). As Santschi con­cludes, as long as most investors keep hid­ing most of their money away, the econ­omy is unlikely to get off to the races any­time soon and while we agree from a con­sump­tive demand per­spec­tive, any recov­ery will only be truly sus­tain­able via sav­ings which are being des­per­ately drawn-down by a need to main­tain stan­dards of liv­ing that are per­haps too much to expect.

Source: TrimTabs, via Youtube, Jan­u­ary 12, 2012

Tags: Assets, Backdrop, Bonds, Economy, Eight Times, Failure, High Yield Bond, Investors, Mattresses, Mutual Fund, Perspective, Real Money, Record Highs, risk, Savings Accounts, Statistic, Stock Markets, Trimtabs, Youtube
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Equities to Outperform in a Volatile World

Friday, January 6th, 2012

In its lat­est Daily Insights report, BCA Research empha­sizes that the tail risks fac­ing the global econ­omy and finan­cial mar­kets will hang over mar­kets in 2012, mak­ing it another dif­fi­cult year for investors.

“While mon­e­tary pol­icy will remain extremely easy, low rates by them­selves do not guar­an­tee that risk assets will per­form well, espe­cially since profit mar­gins are extremely high (i.e. the risk is to the down­side). But at least val­u­a­tion is rea­son­ably attrac­tive, said the report.

“Over the medium-to-long term, the total return on global equi­ties should eas­ily sur­pass [gov­ern­ment] bonds, even fac­tor­ing in very weak growth. For exam­ple, if we assume extremely pes­simistic nom­i­nal earn­ings growth of 3% over the com­ing decade and a com­pres­sion in the price-earnings ratio to 10, equi­ties would still deliver returns above cur­rent bond yields. A more rea­son­able expec­ta­tion for global equity returns would be some­thing between 7% and 8% a year. For the U.S., equity returns should be around 6%, reflect­ing lower earn­ings growth and a lower div­i­dend yield.”

In short, equi­ties should out­per­form gov­ern­ment bonds and deliver rea­son­able returns rel­a­tive to alter­na­tives over the medium-to-long run.

Source: BCA Research – Daily Insights, Jan­u­ary 5, 2012.

Tags: Assets, Current, Decade, Dividend Yield, Downside, Earnings Growth, Expectation, Factoring, Financial Markets, Global Economy, Global Equities, Global Equity, Government Bonds, Insights, Investors, Monetary Policy, Price Earnings Ratio, Profit Margins, risk, Volatile World
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"Risk-On" is the Flavour of October

Monday, October 31st, 2011

It is fas­ci­nat­ing how finan­cial mar­kets moved from risk-off in Sep­tem­ber to risk-on in Octo­ber. As shown in the chart below, cour­tesy of Arthur Hill of StockCharts.com, one can mea­sure investors’ sen­ti­ment by com­par­ing the line charts of four ETFs. “The S&P 500 ETF (SPY) and US Oil Fund (USO) rise when risk is ‘on’, while the 20+ year Bond ETF (TLT) and US Dol­lar Fund (UUP) rise when risk is ‘off’. SPY and USO bot­tomed and surged as TLT and UUP peaked and plunged,” shows Hill.

Source: Arthur Hill, StockCharts.com, Octo­ber 28, 2011.

Tags: Amp, Arthur Hill, Dollar Fund, ETF, Financial Markets, Flavour, Hill Source, Investors, Line Charts, risk, Sentiment, Spy, Stockcharts, Stocks, Tlt, Uso, Uup
Posted in ETFs, Markets | Comments Off

Bond fund star Gundlach Focuses on Deflation

Friday, October 7th, 2011

Jef­frey Gund­lach, founder of Dou­ble­Line, which has been the best per­form­ing bond fund so far this year, tells the FT’s Dan McCrum that defla­tion is a greater risk than infla­tion because he believes it would take another cri­sis to trig­ger big mon­e­tary pol­icy changes. Mr Gund­lach says low eco­nomic growth is likely to per­sist and rec­om­mends hedg­ing risk assets with long-term Trea­sury bonds.

Please click here or on the image below to watch the video.

Source: Finan­cial Times, Octo­ber 4, 2011.

Tags: Assets, Bond Fund, Bonds, Economic Growth, Financial Times, Gundlach, Image, inflation, Monetary Policy, risk, Source Financial, Treasury Bonds, Video Source
Posted in Bonds, Brazil, Markets | Comments Off

Gross Favors Safe Sovereigns Without Rising Recession Risk

Wednesday, October 5th, 2011

Bill Gross, who runs the world’s biggest bond fund at Pimco, talks about global reces­sion risk, fixed-income allo­ca­tion in the cur­rent envi­ron­ment, developing-market equi­ties and mon­e­tary poli­cies of the Fed­eral Reserve and Euro­pean Cen­tral Bank. (Also see Gross’s lat­est Invest­ment Out­look, “Six Pac(k)in“.)

Tags: Bill Gross, Bond Fund, European Central Bank, Federal Reserve, Fixed Income, Global Recession, Investment Outlook, Monetary Policies, Outlook, risk, Six Pac, Sovereigns
Posted in Markets, Outlook | Comments Off

Jeremy Grantham: Time To Be Serious (and probably too early) Once Again

Tuesday, June 14th, 2011

Part 2 of Jeremy Grantham's 1Q Let­ter to Investors is embed­ded below for your enlight­en­ment. Grantham urges investors to lighten up on risk tak­ing, be pre­pared to be early, and cau­tions not to wait until Octo­ber 1.

Grantham Lim­its, Part II

(You can access it at GMO) .

I strongly sug­gest sign­ing up at GMO’s site.

Hat Tip: Barry Ritholtz, The Big Picture

Tags: 1q, Barry Ritholtz The Big Picture, Embedded, Enlightenment, Hat Tip, Investors, Jeremy Grantham, risk, Site Hat
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"Commodity-Rise Impacts" (Schwab Sector Views)

Friday, February 25th, 2011

Schwab Sec­tor Views: Commodity-Rise Impacts

Brad Sorensen, CFA, Direc­tor of Mar­ket and Sec­tor Analy­sis, Schwab Cen­ter for Finan­cial Research
Feb­ru­ary 24, 2011

Schwab Sec­tor Views reflect a three– to six-month out­look and are appro­pri­ate for investors look­ing for tac­ti­cal ideas. We typ­i­cally update our views every two weeks.

Com­mod­ity prices have received a lot of atten­tion dur­ing the past sev­eral months: from oil and gold, that have been mul­ti­year sto­ries, to the more-recent rise in food-related com­modi­ties that has helped fuel unrest in the Mid­dle East. As a reader of our sec­tor views, which are more tac­ti­cal in nature, you may won­der if there are some near-term sec­tor impli­ca­tions of the ris­ing com­modi­ties complex.

Let me unequiv­o­cally say … maybe. As we've noted before, invest­ing is never a one-factor model and this case is no dif­fer­ent. How­ever, we must pay atten­tion to the recent rise in com­mod­ity prices, because it can cer­tainly have an impact on our sec­tor calls.

For exam­ple, we recently upgraded both energy and mate­ri­als on our view that eco­nomic growth would con­tinue to fuel ris­ing oil, nat­ural gas and met­als prices. Now we have to start look­ing at the other side of the ledger, because the rise in some prices has been so severe that it could threaten the per­for­mance of some sectors.

Let me first note that we don't want to over­re­act and aren't mak­ing any changes in rec­om­men­da­tions this week, but we are watch­ing the fol­low­ing closely for their poten­tial impe­tus for changes in our views.

For sec­tors includ­ing con­sumer dis­cre­tionary, con­sumer sta­ples, mate­ri­als and indus­tri­als, we're watch­ing not only the sus­tain­abil­ity of the higher input costs, but also the abil­ity of com­pa­nies in these groups to pass their increased costs on to customers.

Com­pa­nies have largely been unsuc­cess­ful in rais­ing prices dur­ing the past cou­ple of years, so mar­gins could be at risk if both the high com­mod­ity prices and inabil­ity to pass those costs on continue.

For now, wage growth remains stag­nant, and given that labor is often the major expense for com­pa­nies, this helps man­age­ment main­tain prof­itabil­ity. How­ever, we'll watch for poten­tial changes there.

Addi­tion­ally, we're watch­ing the reac­tion of global cen­tral banks to the rise in com­mod­ity prices as tight­en­ing mea­sures are already being put in place. The dan­ger, of course, is that cen­tral banks over­re­act, push­ing the global econ­omy back into recession—which would vastly change our sec­tor out­look. We're not pre­dict­ing that will occur, as pol­i­cy­mak­ers are aware of the risks of aggres­sive tight­en­ing, but as global unrest rises, it's not some­thing we can discount.

Finally, a word of cau­tion about invest­ing directly in com­modi­ties. While there may be sit­u­a­tions when it's appro­pri­ate, it can also be tricky. First, remem­ber that often when every­one is clam­or­ing to get into some­thing, that's often a decent time to move the other way.

Sec­ond, there are many prod­ucts designed to pro­vide direct com­mod­ity expo­sure, but many have lit­tle track record and can get com­pli­cated pretty quickly—plus, liq­uid­ity can be an issue in some. If you insist on invest­ing directly in com­modi­ties, we strongly sug­gest doing so with cau­tion and with the appro­pri­ate due diligence.

For details on our sec­tor views, please read the expanded analy­sis below for each sec­tor. As noted above, our rec­om­men­da­tions can and do change quickly at times as we con­tin­u­ally mon­i­tor eco­nomic progress and spe­cific fac­tors influ­enc­ing indi­vid­ual sec­tors, so check back often.

Con­sumer dis­cre­tionary: Marketperform

Bad weather through much of the coun­try through­out the first part of the year con­tin­ues to make it more dif­fi­cult to get a good read on what the con­sumer is doing. How­ever, the per­sonal con­sump­tion com­po­nent of fourth-quarter gross domes­tic prod­uct, along with a cou­ple of con­sumer sen­ti­ment sur­veys, indi­cates that the mori­bund Amer­i­can con­sumer is a thing of the past—at least for now.

How­ever, that doesn't mean that spend­ing has returned with abandon—the sav­ings rate remains above 5% and com­pa­nies con­tinue to point to the price dis­crim­i­na­tion of con­sumers as a con­tin­u­ing challenge.

Addi­tion­ally, unem­ploy­ment remains stub­bornly high, credit stan­dards remain tight, and, as noted, con­sumers still seem to be intent on sav­ing more and spend­ing less. Com­bine these issues with the margin-squeezing dis­count­ing men­tioned above that many retail­ers had to insti­tute in order to entice shop­pers, and you still have a chal­leng­ing retail envi­ron­ment, lead­ing us to con­tinue to hold the dis­cre­tionary group at marketperform.

Also, we're becom­ing more con­cerned with the rise in com­mod­ity prices, which threaten to not only squeeze mar­gins as pass­ing costs on to cus­tomers remains dif­fi­cult, but also to crimp cus­tomers' abil­ity to spend on dis­cre­tionary items as more money is spent on such things as food and energy.

Tags: China, Commodities, Commodity Prices, Consumer Staples, Economic Growth, Emerging Markets, energy, Factor Model, Gold, Impetus, Industrials, Infrastructure, Input Costs, Investors, Margins, Metals Prices, Middle East, Natural Gas, oil, risk, Schwab, Sector Analysis, Sectors, Sustainability, Unrest
Posted in Commodities, Credit Markets, Energy & Natural Resources, Gold, Infrastructure, Markets, Oil and Gas, Outlook | Comments Off

Pimco: Inflation poses risk to traditional bond funds

Monday, February 21st, 2011

Chris Dia­ly­nas, man­ag­ing direc­tor at Pimco, on why the uncon­strained bond fund he man­ages is short on bonds. He says Pimco’s view is that infla­tion and ris­ing inter­est rates pose a risk. The fund has also taken large posi­tions in Asian cur­ren­cies in expec­ta­tion of them rising.

Click here or on the image below to view the video.

Source: Finan­cial Times, Feb­ru­ary 10, 2011.

Tags: Asian Currencies, Bond Fund, Bond Funds, Bonds, Expectation, Financial Times, Image View, inflation, Managing Director, PIMCO, Rising Interest Rates, risk, Source Financial, Video Source
Posted in Bonds, Markets | Comments Off

Legendary PM Chuck Royce: Small is Beautiful

Monday, February 7th, 2011

This week on Wealth­track, Con­suelo Mack inter­views leg­endary port­fo­lio man­ager Chuck Royce. The small com­pany stock guru explains how he has beaten the mar­ket with less risk over the last 35 years and why small is still beautiful.

Note: The tran­script of this inter­view is not avail­able yet, but will be posted here as soon as it arrives.

Source: Wealth­track, Feb­ru­ary 4, 2011.

Tags: 35 Years, Beautiful, Company Stock, Consuelo Mack, Guru, Interviews, Portfolio Manager, risk, Wealthtrack
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