Thats what these guys do, they tank the front end for no reason, giving me opportunity for profit. Using Bill Dudley 6 month 'extended period' interpretation, if the fed removes the language in March(Doesnt seem likely but who knows), the first hike is in August 10 at the earliest, if that doesnt happen then your hawkish summer nightmare is over
Latest from Annaly Capital explaining the distortion in the housing numbers caused by the tax rebate ... http://www.annaly.com/blog/?cat=news&id=1340638 I have a high regard for these guys. I've know some of the management and have owned and had dividends reinvested in their stock since it came public. I'm not smart enough to figure out my IRR on this company, but its got to be well north of 15% over the last 10 or so years. I feel very comfortable having money invested with them, as well as investing alongside them - and right now they seem happy to ride the yield curve.
There are some worries that the Bush tax cuts expiration in 2011 might lead to a double dip recession. I would agree if that were to happen the economy will get hit hard but I dont believe that will happen, at least not fully. Christina Romer and probably Larry Summers would advise Obama a net tightening of fiscal policy if the economic conditions were still weak, Geithner(if he is still around late in the year) is likely to be in the same camp as well. They all know what happened in 1937(heck Romer wrote an article on the economist 'Lessons from 1937', Geithner as a central banker has probably read the Japanese 90's literature), so yes the Bush tax cuts might expire but the WH is likely to propose tax cuts in other areas, so the net tax hike will not be as as huge, even if there is one In fact, I suspect they will implement those through some kind of new stimulus package. With the UR rising and elections coming, there will be a growing pressure for those
I was a shareholder of them as a way to play Fed cuts in 2007/2008. then FNM and FRE went into trouble and even though I was 100% right on FOMC policy, I lost money, as NLY became a puppet for GSE fears. I'd say ZQ and GE are a surperior way to play the 'carry trade' than these stocks. I dont want to expose myself to risks that have nothing to do with the yield curve but you might disagree since as a US citizen your tax burden might be smaller as your profit comes in the form of dividends. Its also tough to leverup the stock position
I'm growing increasingly convinced that understading how people in government thinks and their tendencies can provide one with an edge when macro trading even its all public information. The markets acted a bit surprised by Hoenig dissent, some markets participants didnt like that, there was quite of a decline in the front end(some of it certaintly can be attributed to other things), although I cant prove it my instinct says Hoenig dissent was not fully priced, even though I was dead sure it was coming. Just by reading his speeches you could tell the guy was looking for trouble, he was also in congress trash talking TARP and other things so how come the market didnt fully realize this? Also we had in 2008 the Paulson bailout of FNM/FRE where I was also dead sure shareholders were going to get wacked after the Bear $2 share and his statement 'when taxpayers get involved we will not bailout the stockholder' or something to that effect. Public information yet when Bernanke and Paulson met with the heads of the GSEs in the after-hours session of the friday before the rescue the stocks didnt collapse much
I plan to buy 'On the Brink' memoir from Paulson in order to learn more from people in government. I also have a background in poker playing(its how I build my trading stake), I would highly recommend to anyone to learn it, for one thing it gets in the habit of trying to figure out what will people do, how they think based on the information you have. This helps you to understand what the likely course of action of policymarkers will be, even though you will be wrong a few times(I didnt believe the US government would do the zombie bank policy but they did), you might still do better than the market
The GDP number is impressive but the final sales growth was only 2.2%, the FOMC members(being all trained economists) are quite aware there is inventory cycle going on and that the underlying economy is weak(super fiscal and monetary stimulus and 2.2% final sales growth) The employment cost index is at record lows http://barrons.econoday.com/byshoweventfull.asp?fid=442493&cust=barrons&year=2010#top Even lower than the 2002-2003 period where Greenspan was scared of deflation
Important day today IMO. The GDP number is old news and doesn't bother me a bit. It was pretty clear from earlier stats, earnings, and my own anecdotal resources that the economy was doing fine in Q4. However, the Chicago PMI has shaken me a bit. That's more of a real time indicator and it shows continued strong growth in January. As usual, the numbers are not that important, but the market reaction to them will be. A strong equity rally and a hurtin' on the short end of curve early. Let's see what happens for the remainder of the day.
Remember also that it's month-end, which means index extension in fixed income (relatively big 'un in TIPS and EUR guvvies, not so big in USTs) and god-knows-what in equities...
Just read Bill Gross' portion of the Barron's roundtable. He's definitely in the 'rates low for a long time' camp. However, if I read him right, he believes the funds rate could go to 1% over the next year, not because of an improving economy, but for more techinical reasons. We are forecasting that the Federal Reserve keeps interest rates in the 1% range for the next 12 to 24 months. At some point, investors, or even Main Street, may force the Fed to give them something more. Most of the time we view rates from the standpoint of what borrowers and banks need in order to regenerate capital. Rate policy is never determined by the yield Main Street needs on CDs [certificates of deposit] in order to survive. At some point there could be a compromise, but it isn't one the Fed is used to making or even thinking about. Interest rates can't stay at zero forever, but they are going to stay low for a long, long time. This would decimate the ge calls. Nothing worse than being right and losing money.