David Rosenberg: Yesterday’s action was telling

Thursday, September 3rd, 2009

David Rosenberg’s Breakfast with Dave newsletter just came in - here is the synopsis that accompanied the report:

YESTERDAY’S ACTION WAS TELLING

The damage was done yesterday. The U.S. 10-year Treasury note yield broke below the interim lows (as did the long bond) and this is very likely going to set up a retest of the 3.00% level. Government bond yields are at a seven-week low. Corporate bond risk, as measured by CDS, has risen to a six-week high. The Canadian dollar has slipped to a two-week low - even gold/silver prices ripped (best session in five months) and generated a further huge outperformance between Canada and the U.S.A. Meanwhile, gold is rallying on the safe-haven bid because other commodities like oil (down to a two-week low) and copper dropped on cyclical concerns. (China’s decision to diversify into IMF notes to the tune of $50 billion also likely helped bolster the gold price). Welcome to the real post-bubble credit collapse world where the initial earthquake is followed by intermittent aftershocks - as market chatter now turns towards the next possible financial problem.

BUYING POWER, WHERE ART THOU? According to TrimTabs, corporate insiders were net sellers of their stock to the tune of $6.3 billion in August - the selling/buying ratio was a huge 30.7x (insiders bought only $210 million). Not only that, but share buybacks slowed to a trickle in August too - $3.6 billion, which was the third lowest tally in the past two years.

EMPLOYMENT BACKDROP … STILL THE MISSING LINK

The government has managed to pull rabbits out of the hat when it comes time to stimulate housing and autos - though not indefinitely - but obviously has no such magical show for the labour market. As the ADP data showed, there were 298k private sector jobs lost in August (but isn’t that a green shoot next to -360k in July and, -433 in June, -461 in May and -518k in April?).

Not only that, but the slack in labour markets across the U.S.A. have hit truly extreme levels. Fully 19 metro areas now have unemployment rates above 15%, and there are locales in California where the numbers are north of 30%.

To get the report, you have to register with Gluskin Sheff to receive them. They’re well-worth reading.

Tags: 7x, Aftershocks, Bond Yields, Canada, Commodities, Corporate Bond, Corporate Insiders, David Rosenberg, Gold, Gold Price, Gold Silver, Government Bond, Labour Market, Labour Markets, Level Government, Market Chatter, Missing Link, oil, Outperformance, Retest, Safe Haven, Share Buybacks, Silver Prices, Year Treasury Note
Posted in Gold, Markets | No Comments »

Setting the Bull Trap

Wednesday, January 7th, 2009

This post is a guest contribution by Bennet Sedacca*, President of Atlantic Advisors Asset Management.

Long time students of the market will tell you that “the crowd is usually wrong at the extremes”. Judging by what I see, hear and read in the media, the current consensus is that stocks bottomed on November 20th-21st, an economic recovery will begin in the second half of 2009, corporate bonds are a buy, stocks are cheap and the stock market is now discounting all the bad news. This is surely a sign that the worst is likely behind us.

Even though I was looking for a low in the S&P 500 around 750 (it bottomed around 740 on November 21st only to close at 800 the same day), I continue to believe that was a low point, but not THE low point for this bear market. We were large buyers of Mortgage Backed Securities during the Wall Street de-leveraging and have been rewarded with handsome gains, although we began to take some profits on Friday where appropriate.

Corporate bond spreads have tightened during a slow holiday season as well as spreads in CMBS (Commercial Mortgage Backed Securities). Corporate spreads may or may not tighten further as I believe there will be a wave of issuance at every level - Government, Emerging Markets, Corporations, Municipalities, etc. Treasury yields have crashed as the Fed has taken the Federal Funds Target Rate to a range of 0-0.25%.

Stocks have rallied even more to S&P 931 and could possibly make a run at 1,000-1,100 if “performance anxiety” sets in among those portfolio managers that are afraid to miss the rally. We are not afraid of missing the rally because we are absolute return investors and have the luxury of having missed the big down move from nearly 1,600. The managers that are subject to performance anxiety are the same group that managed to a market benchmark only to get tattooed during the downturn.

The Fed is punishing savers and the Prudent Man by manipulating interest rates to zero. You can sit in cash and earn zero or you can be forced out on the risk spectrum just so you can keep up with inflation or your benchmark. Forcing money into risky assets is perhaps the most dangerous experiment ever done, and is so large in scale and so unprecedented that we have no idea how it will end. I expect it to end poorly and with hyper-inflation. The funneling of assets into risk is masking the deteriorating fundamentals and giving the appearance of a market that has bottomed. But this is sleight of hand, an illusion.

The Fed has declared a war on savers, a war on prudence and provided the ultimate Moral Hazard Card - and with our money no less. They are also setting up the ULTIMATE BULL TRAP - a trap so large that when it is sprung, perhaps as early as the end of the first quarter/beginning of second quarter, there will only be sellers left.

Click here for Bennet’s full report.

* President of Atlantic Advisors Asset Management, Bennet Sedacca brings with him more than 26 years of securities industry experience. From 1981 to 1997 he worked for several major investment banks, specializing in high-grade fixed-income securities marketing, trading and portfolio management. In 1997 he formed Sedacca Capital Management focusing on portfolio management for high-net worth individuals and small to mid-sized institutions.

Bennet graduated from Rutgers University in 1982 with a degree in Economics.

Tags: Absolute Return, Bear Market, Buy Stocks, Commercial Mortgage Backed Securities, Corporate Bond Spreads, Corporate Bonds, Downturn, Economic Recovery, Emerging Markets, Holiday Season, Issuance, Level Government, Mortgage Backed Securities, Performance Anxiety, Portfolio Managers, Prudent Man, Stock Market, Target Rate, Time Students, Treasury Yields
Posted in Bonds, Emerging Markets, Markets | 2 Comments »