Tuesday, September 21, 2010

General TSP Discussion.

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SgtWs

Tuesday, September 21, 2010

Post by SgtWs »

Yesterday I did go back into the market, but admittedly I may have made a mistake. I am on the road traveling, and when I made my decision I made it on the observation of what appeared to be a breakout on higher volume. After the close when the numbers came in, volume tracked lower across the board, not higher, which tells me this breakout has a higher probability to fail than if it were on higher volume. Adding to my concerns is what the Fed will say today. I will have to play close attention over the next few days.

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But it is what it is now, so I will wait and see what happens next. Anything could happen from here.

Here is some stuff I found interesting……..

A Correction for Every September By Jeff Hirsch - September 14th, 2010

Jeff Hirsch is editor-in-chief of The Stock Trader’s Almanac, Commodity Trader’s Almanac, and Almanac Investor eNewsletter. He started with the Hirsch Organization in 1990 as a market analyst and historian under the mentorship of his father, Yale Hirsch. Mr. Hirsch regularly appears on major news networks such as CNBC, CNN, and Bloomberg, as well as writes numerous financial columns. He has a free seasonality blog at http://blog.stocktradersalmanac.com.

By Jeffrey A. Hirsch & Christopher Mistal

Dow’s September performance has been impressive thus far, gaining 5.3% and ranking third best since 1901. With just eight of September’s 21 trading days completed, September’s seasonal tendencies are already being dismissed. Yes, September is historically the worst month of the year with an average Dow decline of 1.2% since 1917, but September is not always down.

However, nearly every September since 1917 (except 1954, 1964, 1968 and 1973) has had a correction with an average loss of 4.5%. As the market trends closer to the upper end of its trading range, near resistance, and signs of an overbought market continue to strengthen, the likelihood of a typical September correction is also increasing.


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CHART OF THE DAY: In A Crisis, Its Much Worse To Be An American Worker, Than A Japanese One by Joe Weisenthal

The US economy is frequently compared to Japan in the early days of its lost decade, but here's one way it's way different: the US is a much worse place to be a worker.

As this chart from Deutsche Bank nicely illustrates, US unemployment took off like a rocket when the crisis hit. In Japan, it barely budged, just gradually getting slightly worse over the years.

The good news: At least it means the economy will be forced to restructure faster.


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Cumberland Advisors

What the Fed gets for $100 billion September 15, 2010

Silly rumors swirl about the Fed. One circulating has the Fed increasing the size of its balance sheet by as much as $1 trillion.

The FOMC meets on September 21. They have not decided what they are going to do, so any rumor about the outcome is purely speculative. The likely outcome is that the Fed will do nothing for the next several meetings. There is one exception. The Fed will continue to purchase US Treasury obligations to maintain the size of their balance sheet as their mortgage holdings pay off.

Fed speakers will offer various views of the economic recovery outcome and risks attached to it. A minority of hawks, like Kansas City Fed president Tom Hoenig, will want to tighten policy now. Remember, tightening can be passive, in that doing nothing reduces the balance sheet size and therefore shrinks the monetary base. Chairman Bernanke has made it clear he does NOT want passive tightening. Bernanke’s speeches suggest that the Fed is committed to keeping the balance sheet at its present size for at least a year.

Others on the FOMC will keep the policy door open for additional easing. Bernanke leaves that door open as well. No one calls for immediate additional easing by balance sheet expansion. St. Louis Fed president Jim Bullard wants the decision about purchasing treasuries to be made at each meeting.

The Fed never says it is influenced by politics in the timing of a decision. Fed members deny it, as they must do. However, the members of the FOMC know well that their institution is subject to continuous congressional scrutiny. They see Chairman Bernanke testify regularly and they know that congressional inquires are always answered. The Fed is a creature of Congress. It has recently seen its role changed by Congress. Therefore, it is very unlikely that any significant policy change will be announced at the last meeting before an election.

The debate about the impact of balance sheet size continues unabated. Recently we quoted some statistical work done by BCA Research. They attempted to estimate the number of basis points interest rates would fall for every $100 billion in Fed balance sheet size increase. Their original work guessed that the effect was 7 bps. A subsequent dialogue between Ron Torrens at BCA and Cumberland’s Bob Eisenbeis examined some of the statistical methods used and the various ways to make this estimate. Of course, all studies like this are assumption-driven, and therein one may find difficulty in obtaining precision. Ron offered that the change could be closer to 5 basis points.

BCA also noted that the impact was strongest at the time of Fed policy announcements, and the subsequent actual change was more muted. That observation was enhanced in our dialogue, and BCA gave us permission to add clarity for our readers. Ron emailed: “Another point to think about: this analysis assumes that the entire effect of the announcement is discounted in markets on the day of the announcement. I think what really happens is that some percentage of the total (between 0 and 100%) is discounted on that day and the balance is discounted as the Fed firms up its commitment to act, the final confirmation of which occurs on the day they actually follow through and purchase the securities. So the 5-basis-point number may actually under specify the coefficient. This may be offset, however, by the zero-bound issue – the lower that the term premium goes, the more purchases it takes to push it lower still.”

We appreciate the help and candor of BCA and their dialogue about the math and assumptions.

Other firms have derived different estimates. Reuters quotes Macroeconomic Advisors economist Antulio Bomfim. He estimates, “Each $100 billion in asset buys lowers yields on the 10-year Treasury note by three basis points or 0.03 percentage points” That means gradual buying might go unnoticed. "That might actually be counterproductive because people might start thinking the Fed is powerless, if they see new purchases having little effect," he said.

So what is it? 7 basis points, 5, or 3? Moreover, is there a change from the initial reaction after Lehman failed to the present construction? Could we be at the point where a few $100 billion of additional Fed treasury purchases has little impact? Alternatively, would the market immediately respond favorably to an announcement of balance sheet enlargement by discounting additional future purchases? Here we are back to the Lucas critique and the role of expectations in pricing. Moreover, we must remember that there are many other factors involved in pricing treasury securities.

At Cumberland, we keep working on quantification, even though we know we are chasing an unholy grail. We know that every estimate is wrong the minute we make it. Our best guess is that a large ($500 billion to $1 trillion) announced addition to treasury purchases would lower the 10-year Treasury note yield to about 2.2% or 2.3%. Stocks would rally; bonds would, too. The dollar would fall against most currencies as the gold price rose.

We know that the Fed is finding its own way down this path of expanded balance sheet policy making. The Fed is studying this issue, too. It has been clear that using the balance sheet size and an enlarged excess reserve is a new tool and uncertainty is high. We applaud the Fed for trying to be transparent about it. Their task is not an easy one.

We are confident that Ben Bernanke does not want to be the Fed Chairman who presides over an economic relapse. He knows what happened in the late 1930s when the Fed tightened too soon. He would rather be late and successfully engineer some sort of recovery than too early. He knows that the closer we get to deflation the greater the risks are. In addition, he knows that extracting an economy from a deflationary psychology is very difficult.

At Cumberland, we expect the Fed to hold the short-term interest rate at the present near-zero range for at least another year and perhaps two years. We do not see any near-term inflation threat. Anchoring the short rate this low has profound implications for longer-term rates. Forward rates give clues to that pricing. We continue to invest our bond portfolios with a longer-duration bias and will slowly move to some defensive positions as the economy shows more, albeit gradual and tepid recovery.


David R. Kotok, Chairman and Chief Investment Officer

User avatar
UwshUwerME
Posts: 85
Joined: Fri Jul 09, 2010 2:55 pm

Re: Tuesday, September 21, 2010

Post by UwshUwerME »

I also heard yesterday that the market was breaking out, and that it was time to buy. My two trades are already used up. Will it cost me? We'll have to see.

SgtWs

Re: Tuesday, September 21, 2010

Post by SgtWs »

Well, you are in luck. Lately the market likes to beat me up, so it just may work out for you! :(

SgtWs

Re: Tuesday, September 21, 2010

Post by SgtWs »

http://finance.yahoo.com/tech-ticker/bu ... 35438.html

Interesting interview......

If he is correct, then six more years of pain. I did read his book, and he makes some really good points. If I recall correctly, he called the 80s bull market through the 90s, and is forecasting a drop through about 2020, and then resuming a new bull market sometime around then. His outlook for the housing market was especially dire.

Does anyone else recall?

User avatar
jeffvan1
Posts: 491
Joined: Tue Feb 12, 2008 5:04 pm

Re: Tuesday, September 21, 2010

Post by jeffvan1 »

I think Prechtor is calling it only partially right. About a month ago he was predicting DOW 1000. That will never happen. His concern about the lack of cash in Mutual Funds is misplaced. That's because all the cash is in Bonds which is why bonds are a bubble asset. I do think we are in a secular bear mkt that will turn around in about six more years (2016) which will be punctuated by a series of mini-bull mkts. WE may very be in a mini-bull mkt right now. The Indexes have have been in a +/- 5% trading range for about four months now When you get a sideways range for that long the breakout up or down is monumental. Yesterday's (end of recession) rally may be the next leg up.

SgtWs

Re: Tuesday, September 21, 2010

Post by SgtWs »

Interesting observation. Thanks for sharing. I went to his site. He wants $60 a month for his newsletter!

Is anyone else out there a subscriber to his letter? Is he pretty accurate in his calls? Please share.

I know were extended on this run, but I don't see why we can't run up to 1170-1220 on the S&P. I mean I know there is a lot of doom and gloom out there, but on a purely technical basis it is possible. :lol:

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