Thursday's Musings 3/14/2012

New Pope

The new pope is from Argentina.  His religious name will be Pope Francis; the first pontiff from Latin America and also (importantly) the first Jesuit to be elected Pope.  

The Catholic church is one of the most influential political organizations in the world, and it is a big deal how the church decides to pursue its goals.  

On the economic side, one could view this as the growth of emerging markets influence in the world.  For the Church Latin America, Africa and parts of Asia are where the strongest growth for the church exists.  Generally, membership in the Catholic Church has declined in the US, Canada and Europe except in the Latino population.

Retail Sales

In a word -- STRONG -- it beat all expectations and surprised even the most optimistic forecaster.  In turn this provided fuel for a relentless drive upward in stocks yesterday.  

OK all you consumers... How can this possibly be with all the troubles in Washington?  Are we all unfazed by the disaster of debt of the US government at this point?  Apparently we have become use to adding disastrous debt levels and never-ending wrangling in Washington DC.

While Gas was a major factor in this increase, consumers increased purchases everywhere; Costco, Home Depot, Wal Mart, and internet retailers (like Amazon).

We can now expect the economists to re-forecast growth for 2013 and 2014. It will also put pressure on Republicans, as the President's economic approach is working. 

Don't worry if the Fed ever starts to slow the printing press -- be happy.  (Tongue in cheek - buy stocks like there is no tomorrow - let's party)  Don't worry that the Fed ran a deficit of $204.5 billion for the month of February.  

Business Inventories - Increased

The $$$ is rising.  Traders are moving to risk-on trading.  Retail investors are moving their money out of bonds and other treasuries into ETFs (and high-dividend stocks).

There are now 1,000 plus ETFs and the number is growing everyday. In my studies, there are an awful lot of them that are not viable investments due to management fees or low liquidity or other factors.  

Do you know how to monitor sector rotation?  If so, then for medium term trading EFTs that have reasonable management fees provide a medium term approach to diversifying a portfolio.  An investor can invest in just about anything including currencies, gold, silver, emerging markets and just about anything else.

If you have a good statistical approach to sector rotation you can load data into an Excel spreadsheet and monitor your ETFs.  

Here are some free sources of data:

1. www.stockcharts.com  - you can graph any ETF and do perf analysis.
2. www.ninjatrader.com -- free charting program you can load down to your computer
3. www.kinetic.com -- free end of day data that can be used with ninjatrader

Now that information is worth the price of reading my blog... OK, the only thing you pay is your time, and I hope it has been worth it to you. 

Economic Fundamentals

At least temporarily, traders world-wide have shown a preference for trading fundamentals again.  Once investor sentiment has improved, one can observe the shift from investing in safe haven assets to giving more weight to underlying economic fundamentals for bonds and currencies.

During this shift, traders world-wide have shifted from US bonds into US equities.

News out of Europe has also helped the $$$.  Euro industrial output has fallen more than economists forecast in January.  Somewhat, however, Ireland surprised by having a successful bond auction.  Ireland issued 5 billion Euros worth of 10 year bonds a yields below Italy (and Spain).  Demand was good.

YEN 

The lower parliament endorsed Haruhiko Kuroda to be the next leader of the Bank of Japan.  He is an advocate of increased stimulus.  This will cause the YEN to weaken even more as it has lost nearly 14% against the US $$$ over the last 3 months.

Other Interests

Bonds - tick tick tick BOOM

Look at this article (you may have to sign up)

http://www.investmentnews.com/article/20130310/REG/303109990&issuedate=20130308&sid=BOND13

A very interesting look at the Bond market.  They also have an interview with Bill Gross (Pimco) that is worth reading.

AIG

AIG has announced its tender to buy back bonds of varying amounts.  There are too many different classes of bonds to list here.

They will buy back the bonds through a procedure known as the "Dutch Auction". This kind of auction will start with the "seller" (you if you hold any of AIG's bonds) offering a "high price".  The price is then lowered until the Buyer (AIG) accepts the bid.

At the moment, the AIG estimates are pretty fair, it appears.  Investors appear to trust that AIG has estimated the auction results accurately.

If you hold AIG bonds (of any kind) do you want to take profits now and forgo the excellent yield over the next 10-25 years?  If you were going to sell anyway, this is the time gentle reader.  One would receive near record prices.

Now, for my newsletter readers (do any of you beside my german friends and my business associate in Canada read this blog?)  answering whether you should sell is wrapped up in the "Big Picture".  When will the Feds be required to raise interest rates and quit printing money?  Michael Bloomberg, Mayor NY, says the Federal Reserve will never have to stop, and most Presidents since Nixon would agree.

If you are in for the long haul, hang on to those bonds.  Remember, AIG was "too big to fail" once, and they will likely be again.

Good day...