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Maybe it is time after a 50%+ gain in the major equity indexes, or maybe it is just everyone getting into the October bearish mode. We are hearing more and more calls for a very weak equities market ahead. One of our affiliates just ran a detailed audio/video presentation showing what the charts are expecting for Q4-2009 in the S&P 500, the US Dollar Index, Gold, and even bond yields. Unfortunately this is a bad prediction for stocks and can be tracked directly by the SPDR (NYSE: SPY), or Spyders. This prediction also has some gloom forecast for the US Dollar Index, which can be tracked in the PowerShares DB US Dollar Index Bullish (NYSE: UUP) and in the PowerShares DB US Dollar Index Bearish (NYSE: UDN). That is partly for the call for much higher Gold, which can be tracked most easily in the SPDR Gold Shares (NYSE: GLD). The prediction for bonds was not as finite, but at record lows we can’t really argue with the logic that yields can only go one way unless sideways is considered a directional change.
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Posts for Ticker ‘TLT’
FOMC Cuts… One & Done?? (DIA, SPY, QQQQ, TLT)
Today, Bernanke & Co at the FOMC gave us their rate decision. The FOMC has decided to the Fed Funds Rate 0.25% to 2% and the Discount Rate by 0.25% to 2.25%.
As far as we were concerned, the language, tone, and general fed-speak is now more important to us than the actual rate move.
At 1:55 PM EST today, about 20 minutes before Fed-Time, the key ETF’s for the market were as follows:
- DIAMONDS Trust (AMEX: DIA) $129.27 (+1.09; +0.85%)
- SPDRs (AMEX: SPY) $139.55 (+0.47; +0.34%)
- PowerShares QQQ (NASDAQ: QQQQ) $47.73 (+0.13; +0.27%)
- iShares Lehman 20+ Year Treas Bond (NYSE: TLT) $92.56 (+0.11; +0.12%)
We still believe the U.S. is in a recessionary environment despite a positive GDP number this morning, just like Warren Buffett noted this week. The difference is that we now believe the dangers of the systematic implosion and major spreading of counterparty defaults have passed.
Here were some of the FOMC comments and some of our conjecture:
How Long Until Producer Prices Drop To Consumer Prices? (TLT)
This morning we saw the release of the Producer Price index, or wholesale inflation. Inflation is the key word today. The headline PPI number for November came in at +3.2%. The core-PPI after you strip out food and energy (and whatever else is volatile) was up only +0.4%. Both were much higher than the approximate 1.6% headline estimate and the +0.2% core estimate.
But there is a real problem here. The core year over year headline PPI is +7.2% and the core year over year change is +2.2%. Energy prices were up 14.1%, ouch.
This number seemed like the highest I could recall and there is a reason. This looks like biggest gain in over 30 years. Since the late 1980’s I have always seen the rule that producers have a hard time passing price gains down to consumers, but when you see numbers like this you can’t expect that to stay the case forever.
Imagine how high these numbers would be on the core rate if the Labor Department told the truth and if their computers were accurate.
The 10-Year Treasury Note closed out with a 4.08% yield yesterday. The yield this morning is 4.14%. The iShares Lehman 20+ Year Treasury ETF (NYSE:TLT) is also indicated slightly lower to mirror lower treasury prices and higher yields, although it hasn’t traded yet.
Jon C. Ogg
December 13, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
FOMC Comes Up Short (DIA, TLT)
The FOMC did just come out and issue its discount on interest rates today. We saw a 0.25% RATE CUT FED FUNDS and we saw a 0.25% RATE CUT ON THE DISCOUNT RATE. That 0.25% dual cut might not be greeted with much love because many were hoping for a 0.50% cut perhaps at least on the Discount Rate. The FOMC has noted several issues:
Slowing and intensification of housing,
the strain to financial markets has increased,
core inflation readings have improved modestly but higher energy prices could impact that,
balance of risks with a bias to inflation is gone.
Here is the page where you can access the full statement from the FOMC and compare to prior rate cuts. Here are critical developments around today:
- T. Boone Pickens was just on the tape calling for $100+ oil and the current environment to become the norm.
- 24/7 Wall St.’s own Douglas McIntyre was just noting how the FOMC decision to cut rates could take us up to 15,000 on the DJIA (only 9% away).
- Here was our coverage on the last FOMC OUTLOOK FOR 2008.
- Bond King Bill Gross of PIMCO was calling for 3 1/4% FED FUNDS.
- Goldman Sachs calls recession chances around 45%.
At 2:11 PM EST the DIAMONDS Trust (AMEX:DIA) thattracks the DJIA was up $0.37 to $137.76 and the iShares Lehman 20+ Year Treasury ETF (NYSE:TLT) was up 0.7% at $91.89. The DIAMONDS are now down 0.4% or so.
We won’t rush for the doors nor will we get the pom-poms out for this one today, particularly as many planned FOMC meeting reactions are ultimately reversed more than once in the minutes after an FOMC announcement.
Jon C. Ogg
December 11, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
Fed Outlook Forecast & Regressing Minutes, Enough Ammo For Bulls & Bears Alike
The FOMC gave its first of its quarterly outlooks for the years ahead:
- The FOMC now sees slower GDP growth, raised unemployment, and somewhat reduced inflation.
- Real GDP Growth expectations have been shaved to 1.8%-2.5% from 2.5%-2.75% for 2008, and 2.3%-2.7% for 2009.
- It now forecasts 1.8% to 2.1% for 2008 inflation on PCE measurement, based partly on flattening oil prices.
- It sees unemployment at 4.8% to 4.9% next year, slightly up from 4.75% previously forecast.
As far as the minutes from the October 30 to 31 meeting, 24/7 Wall St.’s take is that "October vote was a close call" and additional insurance… that isn’t indicative of a FOMC hellbent on cutting rates.
- You can see the Minutes here.
24/7 Wall St. has cautioned against a FOMC forecasting for a myriad of reasons. Academics speaking but not making an action generates that much more volatility in the credit and equity markets. The good news is that if you are an active trader, you’ll get three more opportunities to make "Fade the Fed" trades.
Jon C. Ogg
November 20, 2007
Bill Gross Calls For Extreme On Rates (C, CFC, TLH, IEF, TLT)
Bond seer Bill Gross of PIMCO issued his November outlook and is looking for the FOMC not to just need a rate cut this week. He believes that the FOMC will need to cut short-term rates (fed funds) down to a whopping 3.5% in order to avoid a lending contraction not seen since the 1970’s (and even notes the 1930’s).
Bill Gross is a fixed income market hero. A cut of this sort would undoubtedly help his own bond positions and values. But regardless of his being able to win, his voice (and his peers) have been able to influence markets. 24/7 Wall St.’s take on this rate cut is that if this happens too rapidly, then the Fed runs the risk of turning a troubled dollar into a currency crisis not seen in decades. We discussed on Friday the 100% chance of a 25 basis point cut and a small chance for a 50 basis point rate cut, based upon Fed Fund Futures contracts. Our take is that a 4% funds rate would be an adequate wait and see level, mainly because even if rates go back to 1% there are still going to be many borrowers still in trouble.
The conclusion is as follows:
"……Ben Bernanke has no such luxury. While he does have the backstop of a global economy powering on at a 4-5% annual clip, today’s U.S. IPOs were more a creation of leverage and the shadow banking system’s ability to create productivity gains through finance, as opposed to technological innovation. With banks and their shadows in retreat and modern day “world saving committees” relatively impotent, Bernanke must do some heavy lifting as opposed to the light housework required of Alan Greenspan in 1998. An increasingly recessionary looking U.S. economy will likely require 1% real short rates and 3½% Fed Funds in order to stabilize a potential growth contraction in lending not witnessed since the early 1970s or, to be honest, Roosevelt’s depressionary 1930s. We can only hope that Bernanke, Paulson, and their cohorts recognize the danger and that the music keeps playing with the lights still turned on."
- Earlier this year Gross called for higher rates, so this is not without skepticism.
- All pundits are questioning the "Super-SIV"
Gross noted Citigroup (NYSE:) and Countrywide (NYSE:CFC) specifically here. The more active bond-related ETF is the iShares Lehman 20+ Year Treasury Bond (NYSE:TLT) is the bond ETF that traders flock to over interest rates because it tends to have the greatest price volatility from economic and market events. The other two are iShares Lehman 7-10 Year Treasury (NYSE:IEF) and iShares Lehman 10-20 Year Treasury Bond (NYSE:TLH).
ETF Winners & Losers (June 25, 2007)
DJIA 13,352.05; (-8.21; -0.06%)
S&P500 1,497.74 (-4.82; -0.32%)
NASDAQ 2,577.08; (-11.88; -0.46%)
10YR-Bond 5.078%; -0.06%
NYSE Volume 3,098,570,000
NASDAQ Volume 2,014,019,000
Once again, we have dropped most of the ‘leveraged’ and ‘Short’ or ‘Ultra-Short’ ETF’s. The idea is to show which sectors were the winners and losers. We also screen out if too many ETF’s tied to the same sector are showing up so we can show the winners and losers by groups rather than solely be the numbers. Here are today’s:
ETF WINNERS:
iShares MSCI Taiwan Index (EWT) +0.83%
PowerShares Dynamic Insurance (PIC) +0.63%
Ultra Utilities ProShares (UPW) +0.61%
Utilities Select Sector SPDR (XLU) +0.57%
Vanguard Long-Term Bond ETF (BLV) +0.50%
iShares Lehman 20+ Year Treasury (TLT) +0.48%
PowerShares Dynamic Food & Beverage (PBJ) +0.46%
iShares S&P Global Cons Discretionary (RXI) +0.45%
PowerShares Dynamic Deep Value (PVM) +0.47%
ETF LOSERS:
iShares MSCI Mexico Index (EWW) -1.95%
PowerShares DB Silver (DBS) -1.9%
SPDR S&P Oil & Gas Equipment & Services(XES) -1.87%
SPDR S&P Homebuilders (XHB) -1.86%
iShares Dow Jones US Home Construction (ITB) -1.79%
DJ Wilshire REIT ETF (RWR) -1.71%
HealthShares European Drugs (HRJ) -1.70%
iShares S&P Latin America 40 Index (ILF) -1.7%
iShares MSCI Malaysia Index (EWM) -1.66%
KBW Capital Markets ETF (KCE) -1.65%
First Trust Value Line Equity Allc Index (FVI) -1.6%
Jon C. Ogg
June 25, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
ETF Winners & Losers (June 14, 2007)
DJIA 13,553.73; +71.38 (0.53%)….DIAMONDS Trust (DIA) +0.67%
S&P500 1,522.97; +7.30 (0.48%)…SPDRs ‘Spyders’ (SPY) +0.64%
NASDAQ 2,599.41; +17.10 (0.66%)….NASDAQ 100 PowerShares QQQ (QQQQ) +0.66%
10YR-Bond 5.22%; +0.02% ….close ETF iShares Lehman 20+ Year (TLT) -0.25%
NYSE Volume 2,813,638,000
NASDAQ Volume 1,996,214,000
These are not the absolute highest performing ETF’s because some such as the Ultra ETF’s use leverage, but here are the normal unleveraged ET’s that won today:
iShares MSCI Brazil Index (EWZ) +2.76%
iShares FTSE/Xinhua China 25 Index (FXI) +2.58%
PowerShares Dynamic Aggressive Growth (PGZ) +2.47%
iPath S&P GSCI Total Return Index ETN (GSP) +2.37%
iShares Dow Jones US Oil Equipment Index (IEZ) +2.28%
iShares MSCI South Korea Index (EWY) +2.27%
United States Natural Gas (UNG) +2.23%
iShares S&P GSCI Commodity-Indexed Trust (GSG) +2.11%
Claymore/Robeco Developed World Equity (EEW) +2.10%
Oil Services HOLDRs (OIH) +2.10%
iShares MSCI South Africa Index (EZA) +2.09%
As always, even on a second strong up day there were some losers. We back out the ‘inverse fund’ ETF’s and also the leveraged versions of each. Also, the real estate group was the least impressive and we only included a couple variations to prevent repetition. Here are today’s losers:
DJ Wilshire REIT ETF (RWR) (-1.16%)
iShares Cohen & Steers Realty Majors (ICF) (-1.14%)
WisdomTree Japan High-Yielding Equity (DNL) (-0.94%)
KBW Regional Banking ETF (KRE) (-0.78%)
Shares S&P Global Healthcare (IXJ) (0.58%)
iShares MSCI Malaysia Index (EWM) (0.42%)
Jon C. Ogg
June 14, 2007
Market Trades For Super-Bulls, Chicken-Bulls, and Outright Bears
Stock Tickers: AAPL, GOOG, RIMM, BA, UTX, ATI, RTP, RIO, FLR, SGR, PEP, KO, BUD, CAG, HNZ, CPB, HRL, K, GIS, KFT, MCD, MRK, PFE, ALO, PYX, HME, WTR, SNH, SRZ, PG, CL, MO, RAI, CLX, NVO, BRK/A, FLO, DLM, PSQ, DOG, SSO, SH, BIL, IEI, TLT, TLH
There is more than enough bantering back and forth out there about the week’s sell-off in reaction to long-term interest rates and the Bill Gross predictions for potentially higher rates longer-term. So, if you are a super-bull then you’d want to use the leadership stocks to pile surplus cash into thinking the world didn’t really change. If you are a chicken-bull (want to buy but not overly aggressive and still cautious) then you want to buy defensive stocks. If you’re a bear, well at least you get the 5% interest. We wanted to provide at least a partial list of the bull and bear go-to picks ahead of the weekend when many will be doing extra amounts of reading.
Aggressive Bullish Picks
IF this was just an unwarranted sell-off that came because of a rate spook and if Mr. Gross is wrong, then you go hard and fast into what has been working before. Aerospace, Infrastructure, Metals & Mining, very selective Tech. So out of selective tech the two most obvious names are Apple (AAPL) and either Google (GOOG) or Research-in-Motion (RIMM). In Aerospace the go-to names are Boeing (BA) and United Tech (UTX). In metals its Allegheny Tech (ATI), Rio Tinto (RTP), and Companhia Vale do Rio Doce ‘CVRD’ (RIO). In infrastructure the go-to names are Fluor (FLR), Shaw Group (SGR). This week Jim Cramer gave his New Four Horsemen of Technology and booted the old ones.
Defensive Stock Plays For Chicken-Bull
Because this sell-off is for a different reason, we have eliminated the power companies because of the tie being so geared toward higher rates. We’ve also pulled out the debt collection companies because they ran so much after the last sub-prime scare. Here was the first line of 20 defensive stocks back in February from the mini-Asian meltdown and here was the list of second-line defensive names. This still leaves plenty of options, and we added in a few more.
First Line Defensive Stocks: Coca-Cola (KO), PepsiCo (PEP), Anheuser-Busch (BUD), ConAgra (CAG), Heinz (HNZ), Campbell Soup (CPB), Hormel (HRL), Kellogg (K), General Mills (GIS), Kraft (KFT), McDonalds (MCD), Merck (MRK), Pfizer (PFE), P & G (PG), Colgate-Polmolive (CL), Altria (MO), Reynolds American (RAI), and Clorox (CLX).
Second-Line Defensive Stocks: Berkshire Hathaway (BRK/a), Flowers Foods (FLO), Del Monte Foods (DLM), Novo Nordisk (NVO), Alpharma (ALO), Playtex (PYX), Home Properties (HME), Aqua America (WTR), and Senior Housing (SNH), Sunrise Senior Living (SRZ).
The Bearish Trades
If you are still bearish or are completely bearish, then you’ve got Treasuries and all of the inverse ETF funds. Some of the negative market ETF trades that move invesrely are the SHORT QQQ PROSHARES (PSQ), SHORT DOW30 PROSHARES (DOG), ULTRA S&P500 PROSHARES (SSO), SHORT S&P500 PROSHARES (SH), and more. For short-term rate ETF’s you have the fairly new STREETTRACKS SERIES TRUST Lehman 1-3 MO T-BILL (BIL). The more liquid interest rate ETF’s that actually trade are the iShares Lehman 20+ Year Treas Bond (TLT), iShares Lehman 10-20 Year Treas Bond (TLH), iShares Lehman 3-7 Year T-Note (IEI), and more.
As a reminder, defensive stocks still tend to get hit when the market gets so bad that they throw out the baby with the bath water, but they usually start to fall less and less and are usually the first stocks that traders commit money to at the turns. Defensive doesn’t mean immune. Also, all of these are merely part of a partial list and the list could have easily been 3-times the size.
Jon C. Ogg
June 8, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
ETF Plays on Rates (TLT, ITB, IEF); 10-Year Rates At 10-Month Highs
ETF Tickers: TLT, ITB, IEF
Some stock traders claim to be spooked by the thought of higher rates. The two consecutive negative days were partially on this, but today was the mark to watch. The 10-Year US Treasury Note just crossed back over 5.00% for the first time since August 2006. The yield is currently at $5.04% to 5.05%, up 0.08% from last night.
An ETF that tracks the intermediate to longer-term maturities is the iShares Lehman 20+ Year Treasury Bond (TLT), and this is down 0.8% at $84.67. Its stated ETF price moves inversely with the direction or change of interest rates, so as rates rise its price falls and vice versa. The slightly shorter time period ETF with a lower duration is the iShares Lehman 7-10 Year Treasury (IEF), and it is trading down 0.5% at$80.61 this morning.
If anyone is still hoping for a rate cut from Bernanke & Co., the markets are beating an entirely different drum. The 10-year note is also the key for mortgage rates, and outside of the negative news still coming out of housing stocks would help explain the 5% drop in the homebuilder stocks. The ETF that tracks homebuilders is the iShares Dow Jones US Home Construction (ITB), and its shares are down again today by more than 1.5% at$35.32 and are now down about 5% from the close on Monday. In fact, average mortgage rates have climbed 0.14% this week.
Rates are dragging on stocks this morning, but not as much as earlier this week. After 45 minutes of trading, here’s where we stand today:
DJIA 13,439.42; -26.25 (-0.2%)
S&P500 1,512.52; -4.86 (-0.3%)
NASDAQ 2,580.09; -7.09 (-0.27%)
Jon C. Ogg
June 7, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
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