Weekend June 21 2013
The Bottom Line
The Stock Market has probably posted an important high for the Year, and possibly since March 2009 on May 22, 2013.
The long bull market in bonds is coming to an end. Our 3..5% target on the long bond, 30 year, has been achieved. This has serious implications for all markets. The great stock rally of 1984-2000 was prompted by lower bond yields. This caused the public to look to stocks for greater gains. The tech revolution sealed the case shut. Now we are in reverse. Dell is going private, MSFT has gone nowhere for years, Apple is down from 700 to 450 or so. Only E Bay, Amazon, and Google remain. The point is that higher bond yields will draw money away from volatile stocks bringing stock valuations down. The bond market is expected to hit an intermediate low this next week.
Gold and silver finaly hit the 1250-1275 lows we expected. This could finally bring some sort of short lived relief rally.
NOTE - Readers have noted that multiple ETFs are now trading at substantial discounts. In normal markets this is the sign of a significant bottom. Considering that we are likely at the third high of an 18 year period of stagnation, with another severe downturn to follow, I suspect this is just a kick off for the big bear markets ahead. The exodus from markets has been so severe funds had to dump holdings from gold to muni bonds in to markets with no bids. Hence, the discount to NAV.
Please read our Friday post June 20 2013 if you have not done so.
The financial markets' violent movements this week underscore the immense challenge the Federal Reserve faces as it eyes an eventual end to its $85 billion-a-month bond-buying program.
After trying for years to lift a postcrisis economy with a concoction of untested easy-money programs, the Fed delivered a largely uplifting message Wednesday: The economy might be getting strong enough to stand on its own with less support.
The market reacted as an addict might to the threat of losing drugs—it broke into shakes and a cold sweat.
Treasurys tumbled, the yield on the 10-year note seeing its steepest weekly jump in a decade. Five- and seven-year bonds, the focus of much of the Fed's bond buying, saw even more violent selling. Investors in high-yield and municipal bonds also rushed for the exits.
Weekend WSJ FED is Toiling in Vain to Calm Jittery Markets
Helen Smith wrote Men on Strike Years ago Dr. Laura noted this trend, that men were shrinking from the marriage commitment after observing their friends being divorced and forced to pay child support. Dr. Smith is warming to the subject but I don't think has grasped that this has created a couple of generations of 'lost families' Such single Mother head of household families are more likely to produce sons in legal trouble who drop out of high school, again this is another negative socionomic trnend of a stagnation era. This began with the inventioin of hte birth control pill in the late 196s and then poof, who needs a husband, indeed....
I would agree with this analyst's traget of $1,000-1,154 target for gold. Not that it matters but the deflation will not come from the FED stopping the bond purchase program. All that did was inflate stock markets and real estate, once again. The deflation was here, it has been beat back twice by easy money in 2003 and 2009 but we are now at reality check. All the debt added to government balance sheets to continues pensions and such has not added anything to the economy. And so we have an unbalanced accounting equation Assets do not equal liabilities plus equity.
Periods of negative social mood often see former heroes and heroines lose their status. Food Network is not renewing Paula Denn's contract. I have no idea what Ms. Deen may or may not have said and express no opinion ther on.
Weekend June 21 2013
The financial markets' violent movements this week underscore the immense challenge the Federal Reserve faces as it eyes an eventual end to its $85 billion-a-month bond-buying program.
After trying for years to lift a postcrisis economy with a concoction of untested easy-money programs, the Fed delivered a largely uplifting message Wednesday: The economy might be getting strong enough to stand on its own with less support.
The market reacted as an addict might to the threat of losing drugs—it broke into shakes and a cold sweat.
Treasurys tumbled, the yield on the 10-year note seeing its steepest weekly jump in a decade. Five- and seven-year bonds, the focus of much of the Fed's bond buying, saw even more violent selling. Investors in high-yield and municipal bonds also rushed for the exits.
Weekend WSJ FED is Toiling in Vain to Calm Jittery Markets
Helen Smith wrote Men on Strike Years ago Dr. Laura noted this trend, that men were shrinking from the marriage commitment after observing their friends being divorced and forced to pay child support. Dr. Smith is warming to the subject but I don't think has grasped that this has created a couple of generations of 'lost families' Such single Mother head of household families are more likely to produce sons in legal trouble who drop out of high school, again this is another negative socionomic trnend of a stagnation era. This began with the inventioin of hte birth control pill in the late 196s and then poof, who needs a husband, indeed....
I would agree with this analyst's traget of $1,000-1,154 target for gold. Not that it matters but the deflation will not come from the FED stopping the bond purchase program. All that did was inflate stock markets and real estate, once again. The deflation was here, it has been beat back twice by easy money in 2003 and 2009 but we are now at reality check. All the debt added to government balance sheets to continues pensions and such has not added anything to the economy. And so we have an unbalanced accounting equation Assets do not equal liabilities plus equity.
Periods of negative social mood often see former heroes and heroines lose their status. Food Network is not renewing Paula Denn's contract. I have no idea what Ms. Deen may or may not have said and express no opinion ther on.
More broadly, Republicans ought to start rethinking the post-1996 welfare state. There are now 79 federal means-tested programs that offer cash, food, housing, health care or social services to low-income people, while the Supplemental Nutrition Assistance Program is one of a dozen federal food aid programs. Society shouldn't shrug its shoulders when so many people are on the food dole.
Food Stamps Second Chance Weekend WSJ
During my five years as a Federal Bankruptcy Trustee, I noticed that bankrupts would scour the landscape for some sort of financial lifeline. A frequent buoy was found in managing to qualify for SS disability Payments. There are now national advertisements on cable tv by lawyers claiming they can get this for potential clients. This has now morphed into a whole panoply of programs, 79 no less. Our point about this period of stagnation is that once a low motivation individual qualifies for such a program that person modifies their lifestyle to keep the benefits. Does anyone thing these 47 million will willingly forgo these benefits to take a $10 per hour job? What does that say about the future entitlement burden?
Here is a recap of our recent observations on TMP
6/21 Cash is the Class Favorite
6/20 Deflation Dead Ahead
6/19 Central Fund CEF trades at massive Discount
6/18 GLD displays classic bear market chart pattern
6/17 Our guess about an oil rally was apparently quite wrong, more on that later
6/15 Intermediate Support for Bonds - maybe not
6/13 It's All One Market - yep, here we go again
6/10 WTIC Resolution Draws Closer, and that is what we got Friday
6/1 Volatility is a Sign of a Distributive Top - this was correct as markets collapsed this past week
Most Important, we compared the High Low and Summation indicators which were way down a week ago, noting stock indexes had a long way to fall to catch up, that indeed happened Thursday
Considering how many brokerage firms were still touting stocks and gold bugs were touting gold, not bad
Overview - The World Votes for the Dollar, A Comparison Chart of Asset Classes
I attempted to rank these from strongest to weakest. Clearly the Dollar is in the lead, all other asset classes are in various stages of decline.
- Stocks broke the 50 dya MA going back to the start of the year.
- Crude oil looks to beginning its decline
- Bonds and gold continue their air pocket drops
The increase in interest rates will be a welcome relief for savers. Are we at some sort of intermediate low for interest rates of will they continue to climb?
Thirty Year Bond Yield
3.5% was our line in the sand for a turn in the bond market. 3.567% was the weekly close. This took out four moving averages. Looking back to 2011 we can see the initial drop was from 4.4%. Once this market turns it has a habit of not looking back. In the thirty year rally in bond prices and yields has not ended it is certainly short lived. Still bond prices are quite oversold.
Here are the tax rates for this year 2013, these are the rates you will pay when you file next year's tax return.
If you are reading this blog my guess is that your taxable income exceeds $72,501. Municipal bond income is, as I write, still exempt from Federal Income Tax. The tax equivalent yield for MUH paying 6.7% is there fore
6.7% / (1-.25) = 6.7/.75 = 9.33%
I am a currently licensed CPA # 15,532 in Texas and had a practice for over 20 years. As I say the really good news in a world of ever higher taxes is that rates are going back up. This is wonderful news for savers that would prefer not to gamble on the direction of stocks and such. Now with rising interest rates the only gamble is on principal risk.
Do not make tax decisions for yourself wihtout consulting a professional about your particular situation! Do not rely on the generic suggestions in a weblog like this to plan your entire future. You are unique, consult a CPA.
Let's put the current yields in long term perspective.
30 Year bond Yields 1985 to Present
For the record I learned what I know about charting the markets beginning about 1983. I began reading Ian McAvity's Deliberations. It was clear he did not want ot believe in lower rates or higher stock prices but he did have some fine charts. I soon added the works of Wells Wilder and Bob Prechter to the library. Living in West Texas in the heart of oil country it was clear oil prices were declining and bond prices were advancing. This led to trading every variety of fixed income investment for individuals, banks, and savings and loan. That Tom Wolf Master of the Universe stuff is great, while it lasts. Rates on the long bond fell from 14% to 7% in those years. Point being a 6-8% rate on the thirty year bond is 'normal.Less than three percent on the thirty year bond is an historic anomaly.
Appreciate that if a 2.5% bond moves to yiled 5%, it loses half its principal value. This is why fund managers in the know are wholesale throwing every long bond with a low coupon over board. The potnetial for capital loss is enormous.
Ten Year Treasury Price Five Year History
The ten year has already hit its 200 WEEK moving average. Note how fast this is happening.
This change in velocity is signalling a huge change in direction for all the markets.
Higher rates will eventually mean that investors will lose interest in low yielding stocks, the very opposite of what drove them to 6% dividends beginning in 1984.
From Top to Bottom, ate Charts for 5, 10, 30 Year Bonds
Most Important, we compared the High Low and Summation indicators which were way down a week ago, noting stock indexes had a long way to fall to catch up, that indeed happened Thursday chart pre dates the 2008 crash. In the bottom chart the 30 year was trading over 4.5% pre crash. Expect a return to those levels. The blue line is the 50 week MA; this has been penetrated for each chaart. How fast, good question.
TLT 2 Hour Chart
The news event of the FED announcement and the capitulation across all markets inlcuding a 345 point down day in stocks suggests we may be near some sort of temporary low. At least traders have the weekend to think about it.
MYD Closed End Muni Fund
The entire chart would not capture. But at top CCI displays some divergence as does what you can see of MACD at bottom. Of the three Black Rpock funds I bought this one has not gone to a new low, another is at a higher high and the third did make a new low. Altogether this is a bit of divergence.
Long Term View MYD
This is what I was referring to in my openning comment. Do not think this cannot happen again. Right now only three cities in CA and Harrisburg PA are in bankruptcy. What about a major pension fund city? Detroit is already a walking zombie but bigger stories await such as Los Angeles and Philadelphia. NOte MACD has already rolled over.
So we shall see but I epxpect a low in bond prices and some sort of bounce to start later this week.
That is 2,100 words, a lengthy post. More to follow I will end at this point.
thanks for reading The Market Perspective
|
The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance ands no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks. Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned. Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital. No guarantee can be made to the accuracy of text or charts. |
Comments