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  • How much longer will stocks be able to ignore signals from the bond market?

    Alexander Gloy

    FOMC (Federal Open Market Committee) met today, announced the reinvestment of maturing mortgage-backed securities into longer-dated Treasury bonds (2-10yr). Fed language unchanged (“to keep interest rates low for an extended period”), but economic outlook a bit gloomier. Bonds rallied, with US 10yr yield down to 2.78%, but stocks closer lower. This is logical, as no…

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  • A failed auction at the ECB spells trouble

    Alexander Gloy

    The European Central Bank just experienced a failed auction. A failed auction means that you did not achieve to sell a predetermined amount of securities to the market. Here, the ECB wanted to mop up EUR 55bn in liquidity (to “sterilize” a similar amount of European government bonds they bought) and received bids for less…

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  • G20 bond victory – stock market ignores reality?

    Alexander Gloy

    The G20 meeting in Toronto brought a slight victory for bond owners as governments agreed the obvious – current deficit levels are unsustainable. The meeting asked all countries to follow “growth-friendly fiscal consolidation plans”, which is a perfectly impossible. The plan is to halve deficits by 2013 and stabilize the ratio of debt to gross…

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  • Who is right – the bond or the stock market?

    Alexander Gloy

    Since six months the correlation between 10yr Treasury bond yields (purple, left hand scale) and the US stock market (right hand scale) had been perfectly positive. Fears about European defaults and thereby lower world growth led to falling stock prices, which led to rising bond prices (or falling yields). Less growth = less inflation = good…

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  • Another red flag: Commercial Paper (CP)

    Alexander Gloy

    What are CP’s? They are unsecured “promissory notes”, sold by large companies and banks with excellent credit ratings to finance short-term needs. They mature within 1 to 270 days (35 on average). Unsecured means there is no collateral (except asset-backed CPs). If the issuer goes belly-up while you hold a CD the joke’s on you.…

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  • Is BP worth a buy after losing 50%?

    Alexander Gloy

    Take a look at CDS (credit default swap) for BP (British Petroleum): because of the possible clean-up costs for the Gulf of Mexico oil spill (especially after a hurricane) insurance costs against bankruptcy today increased by almost 50% to 383bps (basis points). That means it would cost $38,300 annually to insure $1,000,000 of debt against…

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  • A rising TED spread signals red flag for banks

    Alexander Gloy

    Introducing: the TED spread. It’s the difference between (formerly) risk-free 3-months Treasury Bills (hence the “T”) and the 3-months Eurodollar Libor (London Interbank Offered Rate, ticker symbol “ED”). The Libor is an average of interest rates banks charge each other for borrowing money. Currently 3-months Libor is at 0.54%, T-bills at 0.12%, hence difference = 0.42%…

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  • LQD: sold all positions, closed short puts

    Alexander Gloy

    Update May 5, 2010: We have closed all our short puts on LQD (June 105, September 106) with nice profits on May 4. We also sold all LQD (US Investment Grade Corporate Debt ETD) in our cash accounts (May 4 + 5). Reasoning: We are uneasy regarding the high proportion of bank debt in LQD.…

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  • A Greek Drama

    Alexander Gloy

    Monday the S&P 500 made a new 52-week high. On Tuesday hell broke lose after S&P downgraded Greece by 3 steps to junk (from BBB+ to BB+) with negative outlook. Expected recovery in case of default: 30-50%. Greek government bonds (10yr yield 10.5% this morning, 2yr above 18%) would no longer be eligable as collateral…

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  • Investor Presentation: Outlook March 2010

    Alexander Gloy

    Investment Outlook 2010 03 For Public View more presentations from Gloeschi.

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