When Everything is Strong
When Everything is Strong, Redux
It Would Have Happened Already
It Would Have Happened Already, Redux
Four recent posts of mine.? They warn against assuming that trends will continue.? This past week, we gained some evidence that trends won’t continue.? I’m not talking about the upset in commodities, led by silver and crude oil.
Those matter little compared to the low yields for Treasury bills and notes (from Bloomberg.com).
| 3-Month | 0.000 | 08/04/2011 | 0 / .01 | -0.005 / -.005 | 05/06 |
| 6-Month | 0.000 | 11/03/2011 | 0.06 / .06 | 0 / -.000 | 05/06 |
| 12-Month | 0.000 | 05/03/2012 | 0.16 / .16 | -0.01 / -.010 | 05/06 |
| 2-Year | 0.625 | 04/30/2013 | 100-04+ / .55 | 0-01? / -.024 | 05/06 |
| 3-Year | 1.250 | 04/15/2014 | 100-29? / .93 | 0-01? / -.020 | 05/06 |
| 5-Year | 2.000 | 04/30/2016 | 100-21? / 1.86 | 0-03 / -.020 | 05/06 |
| 7-Year | 2.625 | 04/30/2018 | 100-20 / 2.53 | 0-02 / -.010 | 05/06 |
| 10-Year | 3.625 | 02/15/2021 | 104-00 / 3.15 | 0-01 / -.004 | 05/06 |
| 30-Year | 4.750 | 02/15/2041 | 107-24? / 4.29 | -0-17 / .030 | 05/06 |
These low rates threaten the repo market and money market funds.? They also force people into riskier investments.
This is why I view the commodity market weakness as a hiccup.? Speculators, those that follow momentum, got ahead of themselves.
But there is weakness in Europe that should not be ignored.? Will Greece be tossed out of the EU or not?? Given past actions, the answer is no, but who can tell for sure?
We face cross-currents here, there is no yield for savers, which makes many speculate.? But speculation in commodities has blown up recently.? What to do?
Personally, I would edge into commodities, and commodity-related stocks.? When one-year Treasury rates are so low, it is an incentive to buy stuff/commodities.? Why should I hold a worthless dollar when I can hold a lump of copper?
This is a guess, and it is only a guess, but I would favor commodity strength over the weakness in short-term bond yields.? Play it carefully, and wait for strength before joining in.
Bernanke should be required to explain how retirees can defease their retirement costs at the Fed’s artificial interest rates.
Subsidizing failed bank CEOs is a banana republic type policy, no matter how much spin the media tries to put on it.
The supply of T-Bills will be affected by the debt ceiling problem, and I’ve heard that FDIC premiums can be reduced for banks by holding Treasuries. Pressure from both supply and demand thus is affecting rates.
The transmission mechanism of lower rates likely leads to a lower USD. It is the only viable tool that the US government has to force the Chinese and Asians to revalue. The collateral damage will really be aimed at weaker Euro countries. I’d hate to be an Italian manufacturer with the dollar/euro cross rate where it is.
It’s also possible that the whole policy could end up becoming an engine of deflation if, as a consequence, European institutions are forced to the wall.
Just like with the series you did on different types of insurance companies, not all commodities (copper, iron, coal, oil, NG, water, timber, etc) are created equal in transparency, supply / demand, disruptive technology, contractual language . . . Some (in my view copper) are a much better place to be that others (in my view NG). Then within that space there are a wide range of investment choice. Once you select a stock (or ETF or ???), then you have choices of how to invest (long stock, vertical spread, OTM Covered calls, etc.).
Where you dissect the segments and players in the insurance market place very well, a similar understanding in the commodities space will make a big difference to an investor.
In my case I am selling covered calls for FCX and JOYG. The call premiums and dividends have offset the recent correction. Why JOYG? With the 1800s CA gold rush, the real money was made by the shop keepers who sold picks and axes. True I only have 2 holdings in this space. But I am in and [slightly] profitable at what I hope is the bottom. I suspect that I will expand to another 2 or 3 holdings (likely by selling high premium puts). My strategy may well adjust when / if we see a commodities bull market.
FD : We each do our own homework and buy what we want when we want. I may exit or alter my strategy at any time.