Tag: treasury bonds

Why Is The Federal Reserve Not Selling?

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor


On March 15th, the Federal Reserve Chairman, Janet Yellen, announced that the Fed would raise its target rate to 0.75-1.00% from 0.5-0.75%. Yellen also stressed, in a clear, hawkish tone, that the United States economy is doing well. After roughly three months of “hints” embedded in the Fed’s many statements, that news was hardly a surprise.

But in the same speech, Yellen stressed that the Fed was not ready to start selling the $4.5 trillion in the Treasury Notes, Treasury Bonds and mortgage papers that it holds on its balance sheet. Instead, Yellen stressed that the Fed sees rate hikes as the monetary tool. Further, rate hikes, as a tightening measure, must first be exhausted before the Fed would start selling those trillions. That was a clear retreat from the hints the Fed had dropped in the weeks which followed President Trump’s inauguration.

In fact, one could go so far as to say Yellen’s rhetoric, with respect to the Fed’s balance sheet, has been dovish; the way Yellen specifically emphasized how cautious the Fed is about the prospect of trimming its balance sheet singled that option out as some kind of a “bomb” that the Fed doesn't really want to drop and which could send markets into panic mode. If, indeed, the US economy doing so well, why then is the Fed not ready to roll back Quantitative Easing, a stimulus measure generally considered life support for the banking system? Continue reading "Why Is The Federal Reserve Not Selling?" →

The Government's Disastrous Reign over U.S. Money

Posted on by Jeremy Lutz

By Elliott Wave International

Very few people know that the United States did not create a monetary unit pegged to "buy" some amount of metal, as if the dollar were some kind of money independent of metal.

In 1792, Congress passed the U.S. Coinage Act, which defined a dollar as a coin containing 371.25 grains of silver and 44.75 grains of alloy. Congress did not say a dollar was worth that amount of metal; it was that amount of metal. A dollar, then, was a unit of weight, like a gram, ounce or pound. Since the alloy portion of the coin was nearly worthless, a dollar was essentially defined as 371.25 grains -- equal to 24.057 grams, or 0.7734 Troy oz. -- of pure silver. (15.43 grains = 1 gram, and 480 grains = 1 Troy ounce.)

In a nutshell, a dollar was equal to a bit more than 3/4 of an ounce of silver; or, in reverse, an ounce of silver was equal to $1.293.

The same act declared that a new coin, called an Eagle, would consist of 247.5 grains of gold and 22.5 grains of alloy. It valued this coin by law at ten dollars, meaning 3712.5 grains of silver. Continue reading "The Government's Disastrous Reign over U.S. Money" →

Stocks Peak One Year After Bonds (History Set to Repeat?)

Posted on by Jeremy Lutz

Financial parallels between the 1920s and today

By Elliott Wave International

When the financial media mentions the late 1920s, they usually mean the 1929 stock market top. But today's investors can also learn from what happened in 1928. That was the year that the bond market topped, while commodities peaked even sooner.

You can see this for yourself in a chart published in the September 2013 issue of Robert Prechter's Elliott Wave Theorist.

In the deflationary collapse of 1929-32, commodities fell
from lower peaks, not higher peaks; stocks fell
from all-time highs down to the bottom; and bond
prices fell from an all-time high a year earlier.

The Elliott Wave Theorist, July-August,
2013

These markets could see a similar outcome in the near future: Commodities peaked in 2008, while Treasury bonds topped in 2012. The high in the Dow Industrials remains December 31, 2013. Continue reading "Stocks Peak One Year After Bonds (History Set to Repeat?)" →

A Bubble Bigger than Housing Is About to Pop

Posted on by admin

The most devastating market events are those that no one sees coming.

Take what happened to the Lehman Brothers in 2008, for example. Up until the last minute, virtually no one could have imagined one of the country's leading investment banks would file for bankruptcy. The housing market crash was the same way. The Street believed housing prices would never go down.

With the market totally blind to the growing risk in each investment, anyone who had investments in housing or with Lehman Brothers suffered huge losses.

Despite these tough lessons, there is now another epic bubble developing and the market is ignoring this one too.

In fact, this bubble is so big, the 2006 housing bubble and the 2000 bubble pale in comparison. And when it pops, it will hit the most conservative portfolios the hardest. Continue reading "A Bubble Bigger than Housing Is About to Pop" →

Article source: http://feedproxy.google.com/~r/StreetauthorityArticles/~3/LNSdij7KjM4/bubble-bigger-housing-about-pop-heres-how-protect-your-portfolio-463291

Here are TIPs to Protect Yourself from Future Inflation

Posted on by Kenny

Today's guest blogger is Tony D’Altorio, a regular contributor for oxburyresearch.com. Originally formed as an underground investment club, Oxbury Publishing is an investment think tank second to none. The research team is comprised of a wide variety of investment professionals - from equity analysts to futures floor traders – all independent thinkers and all capital market veterans.

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This article is another in my series of articles about common mistakes that the average individual investor makes in their overall portfolio allocation. For these articles, I drew from the 20 years of experience I had at Charles Schwab in dealing with clients face-to-face and helping them meet their financial goals.

In previous articles, I wrote about two areas which were dramatically under-represented in most clients portfolios – commodities and international securities. There is a third area which I found to also be under-represented and that is fixed income investments. Many clients had little or no exposure to fixed income investments.

The most difficult task I believe for allocating funds to fixed income investments is to choose what type of bonds an investor should buy from the myriad of choices available. Obviously, an investor’s specific financial circumstances will dictate the final choices. In this article, I will choose an area of the fixed income world that I believe most investors should currently allocate funds toward.

TREASURY MARKET FANTASY

Right now the Treasury market is enjoying its own titillating little fantasy. It is the ultimate dream of everyone in the bond world. It is nirvana for bond market junkies. It is the D-word – deflation.

The media and financial authorities have fallen in love with the word deflation. The dim bulbs that appear on CNBC air are constantly talking about deflation. This fact alone sets off alarm bells in my head. When is the last time that the conventional wisdom as presented on CNBC ever came true? In fact, when is the first time?

I believe that all of this deflation talk is simply a way for the financial authorities to prepare the public for incredibly massive government spending over the next several years. It simply helps to justify even more massive government bailouts and spending programs. Look at the amount already spent on the “bailout” - nearly $8 trillion. I fully expect that figure to rise by tenfold or more.

I notice that CNBC conveniently seems to have forgotten about how the Treasury market crazies got it wrong in 2003. There was a huge deflation scare at that time too, although on a smaller scale than the current nuttiness. What followed that deflation scare? One of the most massive upward moves in history of the price of many commodities.

Right now, the Treasury market crazies have priced in massive deflation that will occur in the United States for the next decade or longer. They have also priced in corporate default rates of 21%! And this is in the face of massive printing of money and multi-trillion dollar annual deficits.

There is a major headwind that the Treasury market crazies will soon be facing. Over the next four years, 66% of America’s current $5.2 trillion of debt has to be rolled over. Who is going to buy all of this Monopoly paper?

Wall Street is expecting the suckers (foreigners) to buy it all. They seem to have forgotten that, thanks to Wall Street, these foreigners have major financial problems of their own. I strongly believe that most foreign investors’ funds will be spent in their home markets, buying their own bonds, and funding their own governments’ fiscal needs.

When this happens, the Federal Reserve will have to resort to cranking up the printing press to warp speed so that there is enough Monopoly money available to purchase the massive amount of Treasuries which will be issued. Can you say inflation?

MIS-PRICED ASSET - TIPS

In all of the Treasury market nuttiness, there are Treasury securities which have been completely mis-priced. These securities are Treasury Inflation Protected Securities or TIPS. The interest and principal on these securities are indexed to the U.S. Consumer Price Index or CPI.

TIPS have become mis-priced because liquidity has fled the TIPS market, just as liquidity has fled from the equity markets. After all, why would anyone want to own TIPS when everyone “knows” that deflation is here to stay and inflation is dead forever, right?

Wrong! For reasons stated earlier, I believe we will see a mass conflagration of the funds that are currently rushing into Treasury securities at zero or one per cent because of liquidity concerns. And once again, we will see that the conventional Wall Street wisdom will be proven incorrect.

I don’t believe we will ever see massive deflation in this country. I believe that the only possibility of  deflation in the US would be if we truly see 1930s conditions – where the US GDP collapsed by 50% in nominal terms and unemployment rates were at 25%  and corporate defaults were in the 15% range. Sorry, that scenario is not in the cards. What is much more likely is a return of inflation.

TIPS ETFs

An investor can buy an individual TIPS bond, but with the current lack of liquidity the spread between the bid and asked of such securities is unusually large. A better choice may be an ETF which invests in TIPS securities.

Currently, investors have two choices for TIPS ETFs. They are SPDR Barclays Capital TIPS ETF with the symbol IPE and the iShares Lehman TIPS Bond Fund with the symbol TIP.

Both ETFs have many similarities – both ETFs have very low expense fees, both ETFs are down between 7% and 8% for the year, and both ETFs also have a similar average duration of the TIPS bonds that they hold of approximately 7 ½ years.

The only difference seems to be that TIP trades with a higher daily average volume than does IPE and is therefore a bit more of a liquid security.

Due to the current mis-pricing I believe is occurring in the US Treasury market, both TIP and IPE are currently yielding in the 8% range. Keep in mind – this is an 8% yield that investors are receiving on a US Treasury security!

Investors are urged to jump on the bargains occurring currently with regard to the TIPS market. I believe that an immediate purchase of either IPE or TIP will be a wise choice.

Regards,

Tony D’Altorio
Analyst, Oxbury Research