The closing of last week was an interesting one... as investors sold out of positions preparing for the long weekend. After a good day of food, eyes were on Black Friday and Europe... would retail sales produce a number that suggested a weak or strong economy? And of course with Europe operating as usual, there was always a chance for a headline that would rock our markets.
Today, our first trading day after the long weekend, and the results are in... with everyone focused on how strong sales were over the weekend. 52 billion sold... at first this number is baffling... onw that the market has had a little time to digest it, the question everyone is asking is where's the beef?
Beef of course being profit... with profit margins tighter than they every have been, one has to wonder was this Black Friday not as successful as retails would like everyone to believe? Was the real benefit of Black Friday a turnover in old inventory?
This last question has many worried, and is the explanation behind both stocks and bonds rallying.
Bulls and Bears are having it both ways today, a rare day... which suggests we're still consolidation...
Monday, November 28, 2011
Friday, November 18, 2011
Week of Consolidation in MBS
The mortgage backed securities market has been consolidating all week with low volume trading. Cues are still the same, an inverse relationship to the stock market, and tracking and 10 year treasury.
All things considered this week should have been more bullish in the bond markets considering the contagion occurring throughout the European Union. Typically one would have expected us to see a strong rally in our bond market as Europe struggles... alas, we didn't... what's the reason?
Honestly I don't know... one interesting market point is the Italian 5 and 10 year bonds are now inverted, typically a signal to sell equities... and even though we did see a sell off in equities this week, it was relatively contained especially when one looks at the low volume traded.
Consolidations usually lead to breakouts... which i ma expecting. I think we will see a breakout that leads to better pricing, when this happens is more difficult to predict. With us moving into the holiday season I don't think we will see much activity regarding trading this coming week... what we do see will be investors preparing for their long weekends which means probably moving into cash positions across the board. If I'm right we'll see the stock market and bond market finish down in comparison to current trading levels... with some degree of give and take between the two.
The first week of December will be interesting... with three strong weeks of trading before Xmas and the super committee finished with their task one way or another, markets will take their cues from their success of failure, we may even see another downgrade from a rating agency if they completely fail (as if their successfully cutting 1.2 trillion over 10 years - that's 120 billion a year is going to do anything to our out-of-control debt anyways). A success on the other hand I think will lead to an equity rally, which will be short lived due to Euro calamity and the fact that any accomplishment they do make really is like claiming you climbed conquered the local sand bluff. Nothing to write home about unless you are a complete narcissist - wait a minute, they are complete narcissists so we'll hear about for the next week as if it's the only event transpiring.
Not expecting a late rally today, just looking to hold our ground and not fall off... an even sum day would be a strong finish for us, currently down 6 ticks... Here's a graph illustrating the consolidation we currently are experiencing.
Here's to a wonderful weekend.
All things considered this week should have been more bullish in the bond markets considering the contagion occurring throughout the European Union. Typically one would have expected us to see a strong rally in our bond market as Europe struggles... alas, we didn't... what's the reason?
Honestly I don't know... one interesting market point is the Italian 5 and 10 year bonds are now inverted, typically a signal to sell equities... and even though we did see a sell off in equities this week, it was relatively contained especially when one looks at the low volume traded.
Consolidations usually lead to breakouts... which i ma expecting. I think we will see a breakout that leads to better pricing, when this happens is more difficult to predict. With us moving into the holiday season I don't think we will see much activity regarding trading this coming week... what we do see will be investors preparing for their long weekends which means probably moving into cash positions across the board. If I'm right we'll see the stock market and bond market finish down in comparison to current trading levels... with some degree of give and take between the two.
The first week of December will be interesting... with three strong weeks of trading before Xmas and the super committee finished with their task one way or another, markets will take their cues from their success of failure, we may even see another downgrade from a rating agency if they completely fail (as if their successfully cutting 1.2 trillion over 10 years - that's 120 billion a year is going to do anything to our out-of-control debt anyways). A success on the other hand I think will lead to an equity rally, which will be short lived due to Euro calamity and the fact that any accomplishment they do make really is like claiming you climbed conquered the local sand bluff. Nothing to write home about unless you are a complete narcissist - wait a minute, they are complete narcissists so we'll hear about for the next week as if it's the only event transpiring.
Not expecting a late rally today, just looking to hold our ground and not fall off... an even sum day would be a strong finish for us, currently down 6 ticks... Here's a graph illustrating the consolidation we currently are experiencing.
Here's to a wonderful weekend.
Monday, November 7, 2011
Slow Start This Monday...
We're off to a slow start this Monday, with investors sticking to the sidelines. Greece's PM has gone quietly into the night over the weekend, leaving the current government leaderless for the next couple of months until elections. "Leaderless" does have a negative connotation associated with it, in this situation not having a leader may actually work in Greece's favor. For now the Euro bailout will continue without the referendum vote, which has the Euro Zone feeling good today - well as good as you can feel while sick.
Italy has become the talk of the town, and Italy is by no means a small potato. This could be why investors are wary... Greece, was/is a small country. If it is forced out of the European Union, it would be tragic for the Greek people but the world would survive. Kind of like cutting of an arm to save the patient. The arm isn't going to do so well, but life will go on in the body, albeit a slightly different life.
You could argue Italy is just another appendage, unfortunately despite it being the boot of Europe, Italy is more than a mere appendage... it's the leg of a professional runner that is Europe... in other words, it is not small... it's catastrophic... will Europe survive, most likely, but she's never going to run again.
This is in my mind what has investors moving slowly this Monday morning. It's a lot to digest, and while we like to believe this type of world event would benefit our bond markets, there is a question that I have not yet asked, namely: would an event of this magnitude force European countries to sell US bonds and the MBS to raise capital?
Their first play will be to try and inflate their way out of this mess by creating more Euros out of thin air... probably digitized, but they may crank up the old printing presses as well. And what does this type of move do to inflation... bullish for the dollar yes, but for how long -and how many new dollars would we create to give to the IMF which would play a large role in the Euro bailout (yes you read that correctly right now we are bailing out Europe with US dollars produced and given to the IMF by the Fed).
It's a mess, and investors are starting to feel the pressure. It will be interesting to see this come to a head - let's hope that's all it is.
Moving forward, we're likely to continue to trade in the established range with rates better or worse than our current pricing... That's a prophetic statement considering the madness that is Europe. We'll need a major headline to force our markets... in the past that would have been the PM of Greece being ousted, but in today's market that just a typical headline... You'll know it when you hear it - the headline is coming.
Italy has become the talk of the town, and Italy is by no means a small potato. This could be why investors are wary... Greece, was/is a small country. If it is forced out of the European Union, it would be tragic for the Greek people but the world would survive. Kind of like cutting of an arm to save the patient. The arm isn't going to do so well, but life will go on in the body, albeit a slightly different life.
You could argue Italy is just another appendage, unfortunately despite it being the boot of Europe, Italy is more than a mere appendage... it's the leg of a professional runner that is Europe... in other words, it is not small... it's catastrophic... will Europe survive, most likely, but she's never going to run again.
This is in my mind what has investors moving slowly this Monday morning. It's a lot to digest, and while we like to believe this type of world event would benefit our bond markets, there is a question that I have not yet asked, namely: would an event of this magnitude force European countries to sell US bonds and the MBS to raise capital?
Their first play will be to try and inflate their way out of this mess by creating more Euros out of thin air... probably digitized, but they may crank up the old printing presses as well. And what does this type of move do to inflation... bullish for the dollar yes, but for how long -and how many new dollars would we create to give to the IMF which would play a large role in the Euro bailout (yes you read that correctly right now we are bailing out Europe with US dollars produced and given to the IMF by the Fed).
It's a mess, and investors are starting to feel the pressure. It will be interesting to see this come to a head - let's hope that's all it is.
Moving forward, we're likely to continue to trade in the established range with rates better or worse than our current pricing... That's a prophetic statement considering the madness that is Europe. We'll need a major headline to force our markets... in the past that would have been the PM of Greece being ousted, but in today's market that just a typical headline... You'll know it when you hear it - the headline is coming.
Friday, November 4, 2011
MBS recoverying...
The mortgage backed securities market is rally today as stocks sell off. Currently up 8 ticks on the day we have not made back everything we lost yesterday so rates are slightly off in relation to yesterdays opening rate sheet, but interest rates are tracking back down.
An interesting day all things considered, if the employment situation coming in with some positive figures, showing the private sector posting about 100,000 new jobs, one would expect the stock market to rally with our unemployment rate dropping from 9.1 down to 9.0.
Meanwhile the G20 is going on with a Greek vote of confidence set to take place (two different events)... today is anything but quiet, and that may be what has investors skittish and nervous about equities leaving bonds...
All things considered I think today ends zero sum. We may see some movement and repositioning, but in our market I do not expect to a crazy rally... if we make back the losses we incurred yesterday I'll leave for the weekend a happy man.
An interesting day all things considered, if the employment situation coming in with some positive figures, showing the private sector posting about 100,000 new jobs, one would expect the stock market to rally with our unemployment rate dropping from 9.1 down to 9.0.
Meanwhile the G20 is going on with a Greek vote of confidence set to take place (two different events)... today is anything but quiet, and that may be what has investors skittish and nervous about equities leaving bonds...
All things considered I think today ends zero sum. We may see some movement and repositioning, but in our market I do not expect to a crazy rally... if we make back the losses we incurred yesterday I'll leave for the weekend a happy man.
Thursday, November 3, 2011
MBS Selling Off... Rates Move Higher
Another day another policy out of the Euro Zone; Greece now abandoning its apparent referendum vote which has lead stocks up and bonds down - meanwhile the G20 kicks off with the apparent talk all about Greece, a country not even a part of the G20.
Down 9 ticks on the day, it's what we would expect in the wake of a 140 point DOW rally considering the 10 year treasury has tracked back up above 2.000 in yield trading around 2.04% So we continue trading in our range, waiting for new headlines relating to government intervention...
I don't expect to see us recover today, if we can hold losses to a minimum we can count today as a win.
ON A SIDE NOTE: This is not a free market and no one should consider or believe it to be a free market. Our market today completely depends on future government policy.
Sad really.
Down 9 ticks on the day, it's what we would expect in the wake of a 140 point DOW rally considering the 10 year treasury has tracked back up above 2.000 in yield trading around 2.04% So we continue trading in our range, waiting for new headlines relating to government intervention...
I don't expect to see us recover today, if we can hold losses to a minimum we can count today as a win.
ON A SIDE NOTE: This is not a free market and no one should consider or believe it to be a free market. Our market today completely depends on future government policy.
Sad really.
Wednesday, November 2, 2011
Resistance in MBS...
It was a a down day in the market, to start... slowly we dug out of a 5 tick hole and found ourselves even on the day with a half day left. With the equities market rallying, bonds were behaving very bullish holding there ground in the face of a 200 point rally in the DOW. Ultimately we finished two ticks down, but that ain't bad in the face of a 200 pound bully.
Meanwhile the ten year treasury sneaked down below 2.00 yield finishing at 1.9889. It's clear it would have been a different day had treasuries behaved differently. Alas, they didn't, and here we sit waiting for news from the the Europeans.
It's no surprise as far as I'm concerned that Greece is about to fail, question is are they able to keep it together for a little while longer. If so, we may see our markets sell off, which in my opinion are anticipating the failure of Greece. The stock market on the other hand was drinking the KoolAid, yes, the funky kind and for some reason saw reasons to be bullish, as if trying to buy the market higher (in fact this is what hedge funds and other large players may have been trying to do) only to watch it slide twice as far down.
Anyway you cut the cheese it looks like we're going to see a sell off tomorrow in equities which on a normal day would probably lead to a rally in our markets, if the sell off is strong enough; sure, perhaps we gain a couple, but honestly I think it's going to take a larger event to push interest rates down into new low territory.
Greece is something everyone is somewhat prepared for, for better or worse. In other words, it's yesterdays news. Those that think it will lead the stock market higher are (crazy - my opinion) positioned that way, those that think it will lead bonds higher are strong in bonds; therefore it is possible a Greek implosion doesn't move the markets as much as one might think it would.
It may take something more, something less expected, something bigger than little old Greece. That something is Italy, making a lot of news lately as it's 10 year bond yields have risen above 6.000 percent and held, trending upward. This is frankly something Italy cannot afford, which means bailout. This would be cataclysmic in comparison to Greece - and a failure of this magnitude would in my opinion result in a massive stock sell off as the Eurozone prepares for massive reform, leading to depression and most likely hyperinflation, which will send money into our markets, primarily bonds as large international companies adjust future earnings based on the chaos that would surely ensue.
At this point in time, rates would move to a new low point. I have heard no one else predict when this might happen, I give Italy 12 months. Don't hit me if I'm wrong.
Meanwhile the ten year treasury sneaked down below 2.00 yield finishing at 1.9889. It's clear it would have been a different day had treasuries behaved differently. Alas, they didn't, and here we sit waiting for news from the the Europeans.
It's no surprise as far as I'm concerned that Greece is about to fail, question is are they able to keep it together for a little while longer. If so, we may see our markets sell off, which in my opinion are anticipating the failure of Greece. The stock market on the other hand was drinking the KoolAid, yes, the funky kind and for some reason saw reasons to be bullish, as if trying to buy the market higher (in fact this is what hedge funds and other large players may have been trying to do) only to watch it slide twice as far down.
Anyway you cut the cheese it looks like we're going to see a sell off tomorrow in equities which on a normal day would probably lead to a rally in our markets, if the sell off is strong enough; sure, perhaps we gain a couple, but honestly I think it's going to take a larger event to push interest rates down into new low territory.
Greece is something everyone is somewhat prepared for, for better or worse. In other words, it's yesterdays news. Those that think it will lead the stock market higher are (crazy - my opinion) positioned that way, those that think it will lead bonds higher are strong in bonds; therefore it is possible a Greek implosion doesn't move the markets as much as one might think it would.
It may take something more, something less expected, something bigger than little old Greece. That something is Italy, making a lot of news lately as it's 10 year bond yields have risen above 6.000 percent and held, trending upward. This is frankly something Italy cannot afford, which means bailout. This would be cataclysmic in comparison to Greece - and a failure of this magnitude would in my opinion result in a massive stock sell off as the Eurozone prepares for massive reform, leading to depression and most likely hyperinflation, which will send money into our markets, primarily bonds as large international companies adjust future earnings based on the chaos that would surely ensue.
At this point in time, rates would move to a new low point. I have heard no one else predict when this might happen, I give Italy 12 months. Don't hit me if I'm wrong.
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