Happy New Year!
My new year's resolution is to be more active on this forum, now that I've put some busy life events behind me. First thing, I think we need to get out of XFN's. After some quick outperformance from April to August playing the financial recovery theme, it has lagged the broader markets. I think the markets are pricing in some heavier financial regulations coming under the Obama administration which will crimp the banks' profits (if not their bonuses!).
Generally, I think we're in for calmer markets in 2010, with VIX below 20 now, which usually bodes well for the developing markets. Also, the Cdn $ seems to be on a tear, so it could be a good time to buy some foreign assets and repatriate the funds when the dollar cools. Thoughts?
posted by Junk Bonds @ 1/07/2010 09:29:00 AM
3 Comments:
Yes let's get out of XFN. It has been flat for a while and what do we think of tech and QQQQ?
It was quite the year for everything. Oil was up 75%. Brazil 82% Russia 128% India 89% and China 82%, North American Stocks 60%. Commodities were up 50% Gold was the laggard at 24%!
Starting to look like another liquidity bubble.
The Fed has been active recently in warning the markets that their purchases of MBS are about to expire at the end of March....we should be reminded that without the Fed's purchase of $1.5 trillion with a capital 'T', there would have been no housing recovery. If they follow through with the ending of the program there still might not be a housing recovery.
This sounds crazy but differing opinions think that interest rates may go up anywhere between .3 to 1% which has yet to be reflected. Are the markets discounting a reversal by the Fed?
If the Fed stops MBS purchases interest rates will go up and possibly threaten the recovery. If the Fed reconsiders, the $US will get thrashed and gold has the wind to its back.
I think TBT (proshares ultrashort 20 year treasury) remains interesting because if rates go up TBT goes up. If rates hold because of continued Fed intervention then the $US goes down and hedges against potential losses if TBT sells off due to a decrease in rates.
Either way, watch the Bond markets for clues.
I agree the bond market is the key. I read in G&M ROB a few weeks ago, the steepness of the yield curve is pointing to a strong recovery. But then the article hedged its bets by saying there was contrary evidence of a weak economy. Yet, every time people say it's different this time, it ends up being the same.
I think on balance, I would be long the market. Now the question is where? I am agreeable to getting out of QQQQ as well.
What to buy?
OK now that Obama has found religion, the markets are selling off on the uncertainty especially the financials! Even the Cdn banks have sold off and I think we should dump XFN. Slight possibility that XFN catches updraft as reported in the ROB today in the G&M. Apparently the Cdn banks may benefit from increased regulation across the border by shifting business here. Actually I'm hoping the markets start to realize that longer term these financial reforms will actually make the banks stronger. The days of banks growing faster than the real economy are possibly over. Let's hope Obama follows through.
In the mean time shall we sell XFN now. We can reinvest the proceeds into a bond ETF such as XLB until a better idea emerges.
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