Mish's Global Economic Trend Analysis |
- Bond Massacre Hits Treasuries, TIPs, Munis, Mortgages; PIMCO Among Biggest Losers; Is the Bond Bull Finally Over?
- Investors Hold Biggest Commodity Positions On Record; Viral Nonsense About Silver
- What does the "Take this Job and Shove-It Indicator" say about the Economy?
Posted: 10 Dec 2010 04:45 PM PST The treasury market has slapped Bernanke silly. Yields have soared ever since QE II was finalized in November. Mortgage rates are up a half-percent in a month and Bankrate shows they are about at the same level as a year ago. Treasuries, TIPS, and municipal bond funds have all been hit hard in the past few weeks. Matters took a turn for the worse when President Obama agreed to a tax compromise that will cost close to $900 billion. With that backdrop, please consider Pimco Total Return Among Biggest Losers as Bond Rally Fizzles Bill Gross's Pimco Total Return Fund, the world's largest mutual fund, was the second-biggest decliner among the largest U.S. bond managers in the past month as clients pulled money for the first time in two years amid a selloff in Treasuries.Yield Curve As of 2010-12-10 click on any chart in this post for sharper image Note the bearish flattening of the yield curve. Rates are generally rising but they are rising faster in the middle part of the curve than the long end of the curve. The Fed has pinned the extreme short end if the curve to zero. Mortgage Rates Chart courtesy of Bloomberg. TIPZ - PIMCO Broad US TIPS TIPZ is down 6.3% since the peak about a month ago, nearly all of its gains for the entire year. SXMTX - Smith Barney Municipal Fund SXMTX is down 4.9% since the peak about a month ago, over half of its gains for the entire year. I do not like municipal bonds here at all, for multiple reasons. There is enormous supply coming on, rates in general are going up, I expect bankruptcies to rock the sector next year, and the Build America Bond (BAB) program will likely not be extended, nor should it be. I will have more on BABs early next week. IEF - Barclays 7-10 Year Treasury Fund IEF is down 6.5% from the highs but it is still up 8.7% since beginning of the year. For IEF and TLT (the Barclays 20+ Year Treasury Fund) we have to watch to see if reflation continues or withers on the vine. I do not have strong feelings on IEF one way or another. Much depends on the timeframe in which you are trading. However, if yields break substantially North from here, the 30-year bond bull may have breathed its last gasp in October when 3- and 5-year treasury yields hit record lows. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Investors Hold Biggest Commodity Positions On Record; Viral Nonsense About Silver Posted: 10 Dec 2010 10:30 AM PST The Commodity Futures Trading Commission says futures positions in commodities are 17% higher now than when the commodity index peaked in June 2008. The Wall Street Journal picks up the story in Investors Pile Into Commodities Investors are holding their biggest positions on record in the commodities markets as prices surge and debate intensifies among U.S. regulators about whether to limit the amount that any one trader can bet in markets for energy, metals and agricultural products.Anti-Fiat Sentiment The rise in the number of futures contracts is not based on anti-dollar sentiment alone, but rather a distrust of fiat currencies in general. $CRB Reuters/Jefferies Commodity Index Commodity prices peaked in June 2008. $USD - US Dollar Index The US$ index was 72-74 in June of 2008. The US$ index is 80 now yet the number of futures contracts keeps going up. The Journal reports ... The CFTC is under increasing pressure to meet a January deadline set by the Dodd-Frank Wall Street reform law, which requires the regulator to set limits on how many commodity futures contracts in energy and metals a speculator can own. An agriculture proposal is to be implemented by mid April. So far, the agency hasn't developed a formal proposal on position limits; it says it is still collecting data on the over-the-counter market in order to come up with a comprehensive regulatory framework.Dangerous Position for Commodity Players The CFTC setups makes for a dangerous situation for commodity investors. All those screaming about JP Morgan manipulation silver prices should think twice about their screaming. Whatever ruling the CFTC comes up with, if any, that ruling is highly unlikely to be unfavorable to JPM. Moreover, if the CTFC limits contracts, it will lead to equal long and short liquidations. Mathematically it has to. For every long there is a short. Guess who will have advance notice? Viral Nonsense About Silver Emails and videos regarding silver are going viral. There is no evidence to support the theory that JPM will be forced to cover silver futures no matter how high the price of silver goes. JPM did not have to cover shorts at $7, at $10, at $15, at $25, or at $30. JPM has been short silver futures for something like forever. If JPM has not been forced to cover yet, perhaps the reasonable conclusion is no price would force JPM to cover shorts. Yet these "force JPM to cover" theories have gone viral with everyone plowing into the buy silver meme. JPM can easily be hedged. To hedge, all JPM would need to do is offset its short positions with an offsetting position in SLV or some other mechanism. The ultimate irony would be if JPM gets a small benefit out of rising silver prices. It would not surprise me in the least were that to be the case. I am a fan of physical gold and silver, but I certainly do not advise buying silver because of some alleged short squeeze that is unlikely at any price. Thoughts on Controlling Speculation Speculation in commodities is a measure of distrust in fiat currencies in general. China, Great Britain, Europe, and the US are all engaged in various beggar-thy-neighbor competitive currency debasement policies. The proper way to stop commodity speculation (and a vast number of other problems far more important than commodity speculation) is to fix the root cause of speculation (currency debasement), not to place limits (long or short) on the number of futures. Addendum: Shortly after writing the above I received an email from "KD" regarding JP Morgan and the Massive Silver Short - The Greatest Story Ever Told In his post that I had not yet seen, KD came to the same conclusions as I did above. We arrived at our conclusions independently. Moreover, he put the numbers together to show JPM cannot possibly be short the amount of silver that Max Keiser says. KD concludes "If the long contract holders think there is a massive shortage of physical silver, why don't they just force the sellers to deliver the physical and create their own squeeze?" I have made similar comments myself many times. However, were that to happen, the CTFC probably would step in. Finally, Max Keiser is a friend. I just happen to think he is wrong on this issue. Addendum 2: My friend "HB" at the Acting Man blog chimes in with these thoughts: This stuff people are putting out about JPM's silver short is really a pile of crap.Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
What does the "Take this Job and Shove-It Indicator" say about the Economy? Posted: 10 Dec 2010 12:35 AM PST With a salute to Johnny Paycheck, inquiring minds are investigating the CNBC claim 'Shove It' Indicator Turns Positive: More People Quitting Call it the "Take This Job and Shove It" indicator. The latest report from the Bureau of Labor Statistics shows that an increasing number of people are quitting their jobs, a sign of an upturn in consumer confidence and the economy, according to one economist.Job Openings and Labor Turnover Survey With that lead-in let's turn our focus on the BLS Job Openings and Labor Turnover Survey for October 2010. Number of Unemployed Per Job Opening click on any chart in this post for a sharper image While admitting the trend looks very favorable, please note the ratio was 2.0 at the end of the 2001 recession. It is roughly 4.5 now. Furthermore, at the end of the last recession, the indicator rose for another 2 years. Here is the alleged Take This Job and Shove It" indicator. Quits vs. Layoffs and Discharges While this indicator did indeed turn up (making a higher low in December 2009), the indicator has done little but flatline since April 2010, a full 6 months. Maybe it continues and maybe it doesn't. Moreover, it has to rise by another 500,000 just to get to the August 2003 low. Note that layoffs and discharges did revert to the mean plus an overshoot which should be expected. The number of quits is nowhere near its trendline. Weekly Unemployment Claims Today's weekly unemployment claims number remains headed in the right direction, but +421,00 is hardly anything to crow about except in relative terms. The 4-week moving average of weekly claims shows that things are definitely getting better. However, the number of weekly claims is still at mid-recession levels of the past 5 recessions. Worse yet, claims are falling much slower than any previous recession to get to this 420,000 level. Population Changes For more discrepancies please consider the BLS November Jobs Report The unemployment rate is based off the BLS household survey. The November numbers follow. Last year the civilian population rose by 1,972,000. However, the labor force rose by a mere 287,000. Those not in the labor force rose by 1,686,000. Had it not been for the drop in participation rate, the unemployment rate would have been 10.8%. Here is the math ((15,119+1,686)/(154,007+1,686) ) * 100 = 10.8% US Population vs. Employment, vs. Labor Force, vs. Continued Unemployed The recent spike in continued unemployed is especially aggravating given the flat growth in employment. 6 Million Benefits Paying Jobs Vanish Please consider 6 Million Benefits-Paying Jobs Vanish and Unemployment Rate Drops! Analysis of weekly unemployment data and covered employees shows that 5,977,844 benefit-paying jobs have been lost in the last year. Although employment is not in the depths of hell like it was in late 2008, and while the "Shove-It Indicator" is a positive divergence (assuming it continues up), it is one hell of a stretch to parlay this into the idea that employment approaches a self-sustaining inflection point. There is far more going on than the "Shove-It Indicator" allegedly indicates, especially since it is flatlining. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now. | Email delivery powered by Google |
Google Inc., 20 West Kinzie, Chicago IL USA 60610 |