No Emotions

We are not seeing a strong emotional reaction to the payroll numbers either way, leaving me less likely to trade the broader market. Treasuries are lower after yesterday's breakdown. I will be looking to buy treasuries via the TLT in the coming days if we get a little bit more of a washout.

There are two reasons I believe Treasuries might be ripe for a long trade. Sentiment on treasuries is very negative and this latest breakdown has the potential to get sentiment extreme. That is usually good for at least a bounce. Secondly, I believe rates are reaching levels where they will negatively effect the broader economy and have a slowing effect. While treasuries might be terrible long term investments they could be setting up for a nice trade.

9 comments:

Anonymous said...

Original post December 17 2010 ......................


Anonymous said...

2011 Predictions...

IMO
I think we see more slow growth in employment. Maybe 7.9% by years end.

I see the fed raising rates third quarter 2011.

I think the current move in the market continues and tries to reach 1300 in Jan. then a pullback.

I think it can hit 1420 some point next year but close out 2011 around 1350.

I see bigger returns in 2012 with unemployment around 6.5% But interest rates rocket up in 2012.

What do you see?

December 17, 2010 5:59 PM
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So far so good. I'm not sure why I post my thoughts here because they are always quickly criticized.

Anywho, I'm sticking to my goals. We will be getting decent pullbacks. I will be buying.
good luck.

Anonymous said...

because some people have an inate need for attention.

Anonymous said...

Do you think the fall in tlt has something to do with china saying they are going to raise rates

Anonymous said...

And if they do raise rates what is then play there. If you known rates are going up. Don't say gold, don't say borrow money.

Tsachy Mishal said...

I think the main reason is shorts piling on because everybody sees the breakdown.

PJ said...

The hyperinflation trade is going wild. People are piling into commodities too.

I think it's overdone - I think the worst plausible case is something like the 1970s, with 5-10% inflation - which would wreck the economy now that we're overburdened with debt. So I think the 100% moves in commodities are already pricing in their biggest plausible move.

Economy-wise, China and other developing economies have kept the world economy afloat and they are starting to slow. The economy will turn out a lot weaker than people expect, unless Keynesianism works a lot better than I think it does.

The thing that worries me about my Treasury position is the debt limit showdown. We might get a spike in rates in March as that approaches.

Tsachy Mishal said...

This is more of a trade for me as I believe the downtrend is tired and the shorts are starting to pile on. Add in the negative economic effect. I believe stagflation could happen.

Tsachy Mishal said...

Just to be clear when i wrote stagflation could happen I was talking about the bigger picture, which is why this is only a short term trade for me.

revelo said...

I believe Tschay lives in NYC, but I'm curious about the rest of you, because that can change perspectives.

I'm in Reno myself. Originally I was merely changing my domicile from San Francisco to avoid California income taxes, but then I realized that it really doesn't matter where I live and so I decided to stay here permanently, at least while not traveling (which I do about half the year). My friends are scattered and most communication with them is by computer. Most of my shopping for non-food items is also by computer. So it really doesn't matter where I live anymore. What if this trend catches on? Lots of cheaper places to live than NYC and SFO, for those whose lives are increasingly virtualized. If more people do like me, the impact is hyper-deflationary, given that real-estate is such a huge component of most people's cost structure.

Yes, the government deficit is large and that is inflationary, ceteris paribus. But there are offsetting factors, such as these moves to lower-cost locales, that I think the inflationistas are oblivious to.

Commodities and technology are mutually exclusive, because technology allows substitutions to overcome commodity bottleneckss. So if you believe in technology, as I do, you can't also believe in a rosy future for commodities.

PS. I'm 100% bonds (80% intermediate-term corporates, 20% intermediate-term munis which I bought recently) and quite comfortable there.