Berkeley CSUA MOTD:Entry 52335
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2022/05/27 [General] UID:1000 Activity:popular
5/27    

2009/1/7-12 [Finance/Investment] UID:52335 Activity:nil 61%like:52338
1/7     http://tinyurl.com/7lzzhv
        Barron's article warning about Treasuries says to buy TBT and PST.
        \_ Of course last year Barron's was telling us that the housing
           crisis would be minor and blow over by mid 2008.
           \_ CBS Marketwatch commentary says the same:
              http://tinyurl.com/7swxxd
              I am not saying this is good advice. It may be a contrarian
              indicator. However, it is something to consider and do more
              research on.
2022/05/27 [General] UID:1000 Activity:popular
5/27    

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2012/12/21-2013/1/24 [Industry/Startup, Finance/Investment] UID:54568 Activity:nil
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tinyurl.com/7lzzhv -> online.barrons.com/article/SB123094029415750267.html?mod=yahoobarrons&ru=yahoo
Manage Subscription MONDAY, JANUARY 5, 2009 BARRON'S COVER Get Out Now! By ANDREW BARY The bubble in Treasuries looks ready to pop, sending prices on government debt sharply lower. But just about every other corner of the bond market beckons -- and could provide competitive returns with stocks, even if the equity markets have a strong 2009. Bloglines Reader Or copy the rss link: THE BIGGEST INVESTMENT BUBBLE TODAY may involve one of the safest asset classes: US Treasuries. Yields have plunged to some of the lowest levels since the 1940s as investors, fearful of a sustained global economic downturn and potential deflation, have rushed to purchase government-issued debt. Getty Images The market also has been supported by comments from the Federal Reserve that it, too, may buy long-term Treasuries. The 30-year T-bond stands at 282%, and three-month Treasury bills were sold last week for a yield of just 005%. While a holder can expect to get repaid in full at maturity, the price of longer-term Treasuries could fall sharply in the interim if yields rise. The 30-year T-bond, for instance, would drop 25% in price if its yield rose to 435%, where it stood as recently as Nov. The bear market may have begun Wednesday, when prices of 30-year Treasuries fell 3%. Yields on 30-year Treasuries easily could top 4% by year end. The chief risk to the Treasury market stems from the potentially inflationary impact of both the Federal Reserve's super-accommodative monetary policy, which has dropped short rates close to zero, and the enormous looming fiscal stimulus from the federal government. It also may take higher yields to attract investors -- particularly foreigners -- as the Treasury seeks to fund an estimated deficit of $1 trillion or more in the coming year. ONE SIGN OF TROUBLE FOR TREASURIES is the resilient price of gold, which has risen $150 an ounce since late October, to $880 an ounce, despite weakness in most commodity prices. Investors rightly see gold as an appealing alternative to low-yielding Treasuries and virtually nonexistent yields on short-term debt as the government cranks up its printing presses. Gold was up $45 an ounce last year, while oil was down 50%. Another worrisome indicator: The dollar has weakened recently, losing 10% of its value against the euro in the past month. Ultrashort Lehman 7-10 Year Treasury Proshares (PST), offer a bearish bet on the Treasury market. Both these securities are designed to move at twice the inverse of the daily price movement in Treasury notes and bonds. Since the summer, the 20+Year Proshares has fallen almost 50% as Treasury prices have surged. If Treasury yields return to June levels, the ETF could double in price. iShares Barclays 20+Year Treasury Bond Fund (TLT), an ETF that gives exposure to the long-term government-bond market. While Treasuries look rich, other parts of the bond market beckon, including municipals, corporate bonds, convertible securities, some mortgage securities and preferred stock. The average junk bond now yields 20%, compared with 9% at the start of 2008. Triple-A-rated munis with 30-year maturities are yielding about 525%, almost double the yield on 30-year Treasuries. The yield differential between the two markets is unprecedented. Until this year, munis almost always yielded less than Treasuries because of their tax benefits. Long-term corporate bonds with investment-grade ratings of triple-B now yield an average of 8%, nearly 55 percentage points more than Treasuries of comparable maturity. They rarely have yielded more than four points above government debt. Bank of America (BAC) and Morgan Stanley (MS) yields 9% or more, and many preferreds carry tax advantages because their dividends, like those on common shares, are subject to a 15% federal tax rather than rates on ordinary income. "The only part of the bond market that you need to be bearish on is Treasuries," says Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. A bearish stance toward Treasuries and a bullish one toward the rest of the bond market represents the consensus view. At the same time, it's hard to find bears on corporate bonds. Lately corporate and municipal bonds have rallied, with Merrill Lynch's junk-bond index gaining more than 6% in December, the strongest monthly increase since 1991. Most yield disparities between corporate and municipal bonds and Treasuries still are off the charts relative to historical ranges. Perhaps more important, absolute yields on corporate and municipal debt look attractive relative to inflation, and even stocks. It's tough to estimate the current price/earnings ratio on the Standard & Poor's 500 stock index because the profit outlook is so uncertain amid a recession. Assume $60 in S&P earnings for 2009 and the index, now about 925, trades for 15 times forward profits, not cheap by historical standards. Equity bulls are betting the $60 estimate proves conservative, and that corporate earnings grow sharply in 2010. The S&P likely earned about $72 in 2008, before massive write-offs. The smart money is crowding into the corporate-bond market, including investment-grade debt, junk bonds and so-called leveraged loans, which are bank loans to debt-laden companies such as Neiman Marcus, Georgia-Pacific and First Data. Leveraged loans, which are senior to junk bonds, now trade for an average of about 70 cents on the dollar and carry yield to maturities of 10% to 15%. Many equity-oriented hedge funds and mutual funds have added to their corporate-bond holdings because of enticing yields. "The argument is that the credit markets have to straighten themselves out before stocks rebound," says Marty Fridson, who heads Fridson Investment Advisors in New York. "Investors will rotate into the credit markets and then into stocks when they look more promising." Some investors argue the credit markets are discounting a grimmer economic and financial outlook than the stock market, and thus more opportunity lies in bonds. Junk-bond default rates, which ran at just 34% in the past 12 months, are certain to spike in 2009. Moody's Investors Service expects the US junk-default rate to top 10% in the next year. Yet, with a 20% average yield, junk bonds could provide nice returns, even in that scenario. "You're buying the market at a pretty steep discount," Fridson says. "You're getting compensated for a severe escalation in defaults." The average junk issue trades for less than 60 cents on the dollar, and some bonds, like those issued by the bankrupt Tribune, have sunk to just pennies on the dollar. Defaults might have to run at a cumulative 50% rate in the next five years and recovery rates average just 30 cents on the dollar -- versus a historical average of about 40 cents -- for investors to get sub-par returns. The junk market declined about 27% in 2008, by far the worst showing in the past 20 years. If history is any guide, 2009 should be better because down years like 1990 often have been followed by big gains. It wouldn't take a lot for junk to return 20% in 2009, given the elevated yields throughout the market. Loomis Sayles Bond fund (LSBRX), which owns a mix of US and foreign government bonds, investment-grade corporates and junk debt, fell 22% last year. The fund, co-managed by bond veteran Dan Fuss, now has a current yield of around 11%. Convertible securities, which were bashed in 2008 in part from forced selling by leveraged hedge funds, offer a nice combination of yield and equity kickers. Ford Motor 's 425% convertible bond due in 2036, trading for about 27 cents on the dollar for a 27% yield to an optional redemption date in 2016, is a good alternative to the common stock , which yields nothing. Vanguard, Fidelity and Putnam all have open-end convertible mutual funds, and there are many closed-end funds, including some trading at discounts to their net asset values. The backdrop for municipal bonds is troubled because state and local governments are getting squeezed by lower tax revenue and sizable outlays for basic services and other needs. Investors are getting compensation via 5% to 6% yields on top-grade long-term securities and hig...
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tinyurl.com/7swxxd -> www.marketwatch.com/news/story/short-us-treasurys-january/story.aspx?guid=%7B7BF1EEE9%2D7574%2D4A51%2D9F43%2D7EAC52A1C254%7D&siteid=yhoof
Obama's Challenge latest news Saved by zero Commentary: Shorting US Treasurys is the way to play in January By Thomas Kee Last update: 12:01 am EST Jan. These are reverberating throughout the financial world, and they were the talk of virtually every holiday party I attended. However, this all-in approach has also created a circulatory trap which may cause any projected recovery in the equity markets to stall prematurely. Even though the net return is nil, invested assets in US Treasurys are still believed to be protected from decline. Therefore, 0% yields can provide opportunities for some investors to appreciate. Interestingly though, the best opportunities may not be what most people are aware of. At first glance, an opportunity for zero risk seems like an obvious decision. What often seems like the path of least resistance turns out to be more formidable. Those investors who are rushing to protect their assets in no-return treasurys will end up being ensnared in those positions until they mature. This, in turn, will limit the recovery in the equity market by creating the circulatory trap referenced above. The byproduct of the circulatory trap detailed below is a decline in US Treasurys, and an opportunity to short them as a result. For January, my recommendation is to short US Treasurys. I will explain the most efficient method for doing that in the details below. First, the circulatory trap will develop as follows: The consequence of the "all in" approach of the FOMC is the problem. The already obvious decline in value of the dollar versus foreign currencies has produced added risks in otherwise safe investments. Therefore, foreign investors, who are coincidentally being relied upon to support our growing national deficit, will be faced with an added hurdle when considering an investment in Treasurys. Not only will the return on investment be virtually zero, but the return of the investment itself is now questionable as well. Investors from euro nations, for example, may determine that the actual value of their potential investment in US Treasurys will be lower when those bonds reach maturity. This will occur even though the investment returns the same dollar amount. This happens because the risk of continued devaluation in the dollar is high. In turn, potential foreign investors may perceive investments in US Treasurys as more risky than we might otherwise believe. Consequently, I expect demand for US Treasurys by foreigners to dry up considerably. As supply increases in direct relation to our growing deficit, and demand contracts in direct relation to our declining dollar, I also expect prices of US Treasurys to fall. Any investments made at current levels will be underwater in the near future, and that should force those investors to stay put, even if an equity recovery begins. This, in turn, will prevent the return to parity, which I discussed in my November Trading Strategies article, from having the same impact as I initially believed. In essence, money will be tied up in Treasurys, and unavailable to reallocate into equities as a result. Before I explain the best procedure for taking advantage of the declining value of Treasurys, I do believe the equity market will recover somewhat in 2009. However, given this scenario, I am now concerned that the recovery will be much more restricted than I initially expected. Eventually I expect contemporary Darwinism to cause Citigroup Inc. Although this could be construed as a negative, especially when combined with the declining value of Treasurys, opportunities do exist. Interestingly, I perceive these opportunities to include inherent risk controls at the same time. Inherent risk controls are a natural component of the zero yields of Treasurys. In other words, Treasury yields cannot fall much lower than they already are, and therefore prices are unlikely to increase much more either. Therefore, short positions in US Treasurys have limited downside, if they are opened properly. This is a double weighted short ETF based on the Lehman 7 to 10 year bond index. It does not require sophisticated analysis or futures trading. This is already short, so this is a long recommendation in a professionally managed short-based ETF. A reasonable stop loss should be placed just under the 52-week low because of the dynamics of the investment vehicle, but I believe this position inherently incorporates risk controls already. In addition, I believe PST offers a significant opportunity to patient investors over time. January should be a good time to enter this position, but expect to hold it for a while. Rather than a trade, this could be considered as a short term investment. This position may trade sideways for a while, but once foreign demand starts to dry up and Treasurys are repriced, this position should start to perform well, and reward patient investors. Thomas Kee is president and chief executive of Stock Traders Daily, Founder of the Investment Rate, Architect of the ATAP Program, and active supporter of risk control and proactive trading strategies; his automated, correlated, Market Timing and Stock Selection tools. NASDAQ traded symbols and their current financial status. Intraday data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. SEHK intraday data is provided by Comstock and is at least 60-minutes delayed.