It got a little slow around here during the month of May, and when things get slow we find ways of entertaining ourselves. These aren’t always the healthiest episodes. Much like when your dog gets bored and eats your wife’s purse…it helps pass the time but in the long run it’s not going to end well for him.
Fast forward from the dog’s life to my office…we have multiple Bloomberg screens in front of us all day quickly flashing a myriad of green and red numbers and pushing headlines and data to us in a staccato beat…it is the point where high tech meets high finance. When things slow down here we tend to get very bored. Sometimes we do harmless things to pass the time…like seeing who can eat the most hot-wings…and then who could forget the famous “sour kraut and spam” incident from a few years ago. Harmless stuff really. But sometimes things take a more serious turn…and we decide to do something with…the Bloomberg. In this case several of us saw all of the volatility in the silver futures market and we decided “yeah…let’s play in THAT sandbox!”
So we did. We took positions and tried our hand at trading silver futures via ETF’s. And oooooohhhh what a mistake that turned out to be. If I ignore the emotions, frustration, and financial discomfort the trades brought me I’m left only to ponder the pure stupidity of the move…which is very painful for people unaccustomed to doing stupid things.
I got a glimpse of the future on my drive in this morning when I saw a guy driving a car with vanity license plates that read “FUTURES”. It made me want to laugh and cry at the same time…ultimately I went with laughing because I’ve got reputation to uphold. What made this so funny was that these custom tags (that seemingly proclaimed participation in the fast paced and lucrative futures markets) hung on the back of a beat up old Ford Taurus.
As I drove past him I had a moment of great clarity. I realized that those tags probably used to hang on the Mercedes he lost due to trading futures and now he has to drive around with that ridiculous license plate on a beat-up, second-rate, mid-90’s domestic sedan as a horrific reminder of how his luck treated him in the world of speculative derivatives trading. At that very moment I decided to walk away from this game. So you’re in luck…I won’t be quitting my day job to become a silver trading futures baron. Next time it gets slow I’m just going to unplug the Bloomberg and eat my wife’s purse…it will help pass the time, be just as stupid, and be far less costly.
News of the day
Durable goods orders delivered bad news today posting a -3.6% vs. an expectation of -2.5%. Under normal circumstances you’d expect this to cause a rally in the Treasury market. The problem with that theory is that the Treasury market has rallied so much lately that it barely budged on this morning’s data. The 10-year Treasury is up only a single tic to trade at 3.107%.
There is still a fair amount of data to come this week. Tomorrow we get GDP, Personal Consumption, Initial Jobless Claims, and Continuing Claims. Friday we get Personal Income, PCE deflator (Feds preferred inflation gauge), Michigan Confidence and Pending Home Sales.
Déjà vu
Our current situation seems eerily familiar. We have the 10-year Treasury sitting very close to 3.00% and we have a wad of investors saying they are going to sit on cash until rates improve. It reminds me of June 2010. Roughly a year ago the 10-year was trading at a 3.05%...and by the end of August it had dropped to 2.50%.
Other stuff
Economic data lately has been disappointing and over the next few months the market will continue to wrestle with the situation in Europe. It’s anyone’s guess where rates are going but there are still significant obstacles in the pathway of global growth.
QE2 is scheduled to end next month. The Fed appears intent to let that happen and then take a wait and see approach. There has been no shortage of people forecasting rates to skyrocket after the Fed quits buying but players in the Treasury market don’t appear to be paying heed to such arguments. A month before the end of QE2, buyers are pushing Treasury yields to fresh lows. This is not the pattern of people who expect prices to drop significantly 30 days from now.
The second half
Ready or not we are about to enter the second half of 2011. Fed Funds has been at zero percent for 2.5 years and the forecast for Fed Funds rising keeps getting kicked further down the road. It’s not the prettiest backdrop but it is what it is. Many investors have registered a great deal of uncertainty as to how to deploy their excess cash. The solution is different for every bank…if you’d like someone to bounce ideas off of just give us a call. We have a lot of analytics we can deploy to help you arrive at the answer that is right for you.
If you have any questions or if there is anything I can be doing for you just let me know.
Steve Scaramastro, SVP
800-311-0707
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