Wednesday, May 25, 2011

Market Update 5 25 11 _ Slow is not good

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

 

 

Monday, May 2, 2011

Market Update 5 1 11 _ Weekend at Binnies

 

Tough weekend for Bin Laden.  You KNOW he had the Spurs going past the first round in the NBA playoffs…it should be a slam dunk against the number eight Memphis Grizzlies…pun intended.  He’s got satellite TV, nowhere to be, and a great hideout.  So he gets his official NBA Tony Parker jersey on the black market (which is no easy feat in Abbottabad, Pakistan) and he sits down to watch the game on the dish network.  The next two hours are spent calling his bookie discussing point spreads, watching Memphis dismantle the number-one-seed San Antonio Spurs, and threatening to burn his Tony Parker jersey. 

 

Shortly after losing his shorts on the San Antonio bet he burns the jersey, settles the score with the bookie, and goes to bed hoping he’ll do better the next day with his Oklahoma City pick.  Before he wakes up to catch the pre-game, SEAL Team 6 pays him a visit to settle a different score.   Turn out the lights…the party’s over.  It’s probably for the best…the Oklahoma City game would have given him a stroke anyway.

 

When I heard the news I was very well tempted to go out back and engage in a little celebratory gunfire as is so common in the part of the world where bin laden met his end.  The trouble is that I live in Germantown, TN and folks here would have big problems with celebratory gunfire even in the middle of the day…much less at midnight on a Sunday.  If however I were just down the road in my old North Mississippi neighborhood it would be no big deal…in fact the neighbors there would already have a beer or two on me before I managed to join them.

 

On to the market

 

Market activity is mixed this morning after the release of the ISM Manufacturing data.  The survey expected a 59.5 reading and the actual release was 60.4.  The 10-year is up a bit in price to trade at a 3.27%.  Domestic stock indices are slightly higher on the day.  Crude oil is hovering at $114 a barrel.  We get a fair amount of data this week to include Vehicle Sales, ISM Non-Manufacturing, Jobless Claims and Change in Payrolls data. 

 

With the 10 year trading under 3.30% a lot of people are revisiting the idea of selling items from the portfolio.  If you would like a portfolio review to identify sale candidates just shoot us a copy of your most recent portfolio.  We can then discuss what type of strategy you’d like to pursue (i.e. selling high price vol. items, taking gains, etc.).

 

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