Posts Tagged ‘Relationship’
Gold Miners are Finally Starting to Outperform Bullion
Tuesday, August 14th, 2012
by Michael Kahn, Barron’s
Although it has been quiet on the gold front in recent months, gold-mining stocks are finally making some technical noise. They are not yet fully in bullish mode, but several changes on the charts bode well for miners and, by extension, for the metal too.
The first chart of consequence is the performance comparison between gold shares and gold itself. By plotting a ratio of the Market Vectors Gold Miners exchange-traded fund (ticker: GDX) to the SPDR Gold Trust ETF (GLD), we can easily see changes in their relationship (see Chart 1).
The chart headed south for most of this …
Read the complete article below:
Gold Miners Starting to Pan Out
Tags: Barron, Bullion, Consequence, ETF, Exchange Traded Fund, Gold Exchange, Gold Front, Gold Fund, Gold Miners, Gold Mining Stocks, Gold Pan, Gold Shares, gold stocks, Market Vectors Gold Miners, Michael Kahn, Performance Comparison, Relationship, Spdr, Technical Noise, Ticker, Vectors Gold Miners
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Gold (GLD) is Sneaking Up
Thursday, July 26th, 2012
by Mark Hanna, Market Montage
Gold has been sidelined for many months as it has been in an intermediate term downtrend. Since the Hilsenrath article it has shown some strength. As you can see below it has made a series of lower highs throughout most of 2012, and it is now coming to touch the trend line. If we see gold begin to blast off it would put credence into the idea that action from the Federal Reserve is imminent.
As for the general market, we have a rally in the Euro and weakness in the dollar. With that this incredibly strong relationship continues to be rooted in the market and equity buyers step in. S&P 1340 continues to be an incredibly strong magnet. While this selloff has been sharp the S&P 500 did not actually create a new lower low. So the potential remains for the range bound action we have seen for the past 2 months…
That said I mentioned housing related as a relatively immune sector, and true to form this is an area seeing a lot of selling today. It continues to be impossible to buy almost any strength as these areas get attacked. At this point the only theme I see working ok is perhaps agricultural stocks, due to the U.S. drought. A few REITs also stand out but the way things are going, those will be the next area for selling to occur. The lack of themes or groups working in concert showcases an underlying weakness in the tape.
Tags: agricultural, Amp, Blast, Credence, Drought, Federal Reserve, GLD, Gold, Magnet, Mark Hanna, Nbsp, Rally, Reits, Relationship, Selling Today, Selloff, Showcases, Stocks, Term Downtrend, Trend Line
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Why Investors Persist Hanging on to Long Treasuries at Such Low Yields
Monday, July 2nd, 2012
Some readers have asked if other fixed income asset classes could be just as effective as long term treasuries for an equities portfolio in hedging an equities book (discussed here). Here the comparison is made to municipal bonds, investment grade corporate bonds, and HY corporate bonds. Long term treasuries are still superior in reducing the portfolio volatility – at least based on the last couple of years. That’s because muni and corporate spreads tend to be inversely correlated to equities, reducing the hedge effectiveness of these instruments.
Again, the x-axis is the percent of the portfolio invested in the S&P500, with the rest of the portfolio being in one of the fixed income asset classes. The y-axis is the combined portfolio daily volatility over the past two years.
That is the reason investors are willing to take asymmetric risk and dismal current yield to hold long term treasuries. Whether this relationship holds going forward remains unclear. A scenario in which both treasuries and equities sell off some time in the future is not unrealistic.
Tags: Amp, Asset Classes, Axis, Bonds Investment, Corporate Bonds, Current Yield, Fixed Income, Investors, Municipal Bonds, P500, Portfolio, Reason, Relationship, risk, Treasuries, Volatility
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How Rising Rates Will Affect Stocks (Koesterich)
Wednesday, April 18th, 2012
by Russ Koesterich, iShares
While recent market weakness, and the accompanying bond market rally, has tempered fears of an imminent bond market meltdown, many equity investors are still concerned about the potential impact of rising rates on US and global stocks.
This year, I expect long-term rates to rise modestly as they appear too low. Assuming the US economy continues to stabilize over the course of the year, the yield on the 10-year Treasury will likely rise to around the 3% level, roughly where it was last summer.
However, in my opinion, this probable grind higher is not a major threat to US and global stocks this year for two reasons:
Low Starting Point: It’s important to put the current yield environment in context. Excluding the period of unusually high nominal yields in the 1970s and 1980s, the long-term average nominal yield for the 10-year note is still 5.25%, more than twice today’s level. As such, any rise in rates will be coming from historically low levels. And a rise in rates from the absurdly low to the merely low has not, at least historically, hurt stocks. Equity valuations do contract when rates are rising, but this relationship typically breaks down when rates are this low.
The Driver of Rising Rates: In the past, the reason behind why rates rise has been as important for stocks as how much rates rise. Looking forward, the coming rise in rates will likely be driven by higher real rates, not by higher inflation expectations.
When interest rates are rising due to heightened inflation expectations, stock multiples tend to contract. However, when rising interest rates are due to a rise in real, or after-inflation, rates in the context of a strengthening economy, multiples have not been hurt. In fact, over the long term, there hasn’t been a statistically significant relationship between real yields and multiples. If anything, in recent years — which have generally been characterized by too little growth, rather than too much — stock multiples have risen with real rates.
To be sure, none of above suggests that equities have become impervious to higher rates. While higher real yields probably won’t hurt multiples, a high enough rise could dampen earnings. But in my opinion, any rate rise this year should be modest and likely won’t negatively impact valuations. Looking forward, the real threat to stocks in 2012 is weak economic growth, not higher rates.
Source: Bloomberg
Copyright © BlackRock, Inc. , iShares
Tags: 10 Year Treasury, 1970s, 1980s, Bond Market, Economy, Equity Investors, Fears, Global Stocks, Inflation Expectations, Inflation Rates, Ishares, Market Meltdown, Market Rally, Market Weakness, Nbsp, Nominal Yield, Relationship, Rising Interest Rates, Russ, Valuations
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James Paulsen: Investment Outlook (January 2012) – “Beware of Rising Confidence!”
Thursday, January 5th, 2012
Investor Alert – Beware of Rising Confidence!
For the first time in this recovery, general economic confidence seems poised to improve significantly— a trend which will likely dominate major investment themes throughout 2012. Investors should therefore consider the potential rewards and risks associated with a meaningful improvement in confidence.
Rising Confidence… Why Now?
While not a perfect relationship, Exhibit 1 shows change in the unemployment rate is a very important determinant of confidence. It overlays the Consumer Confidence Index (solid line) with the U.S. unemployment rate (dotted line, shown on an inverted scale). Confidence has not yet improved much in this recovery mostly because the unemployment rate remains stubbornly high.
This may finally be changing. Although still disappointingly slow, the pace of job creation is now sufficient to slowly but steadily lessen the unemployment rate. In 2010, private monthly job gains averaged slightly less than 100 thousand whereas in 2011 (through November) monthly job gains improved to 155 thousand. Following this slow progression, private monthly job gains during 2012 seem poised to average more than 200 thousand.
For the unemployment rate, something magical happens once job gains persist in the 150 to 200 thousand range—labor demand exceeds labor force growth producing a slow but steady fall in the unemployment rate. This may already be underway. In recent months, the unemployment rate has declined to its lowest level of the recovery at 8.6 percent. We expect the unemployment rate to decline further to between 7.5 and 8.0 percent by the end of this year. Using Exhibit 1 as a reference, such improvement in the labor market would be consistent with a Consumer Confidence Index (currently at about 65) of about 85!
If economic confidence in the U.S. recovery does finally embark on a slow but steady rise, what are the implications for investors in 2012? Specifically, what would a revival in confidence imply for bond, commodity, and equity investors?
Confidence and Treasury Yields?
Exhibit 2 overlays the Consumer Confidence Index with the “real” 10-year Treasury bond yield (10-year yield less the annual core consumer price inflation rate). Similar to the aftermath of the dot-com crisis, “fear” has proved the bond market’s best friend since 2007. In the last recovery between 2003 and 2007, the real Treasury bond yield oscillated between 2 and 3 percent. However, as confidence collapsed to record lows in early 2009, the real bond yield declined briefly below 0.5 percent. Real bond yields were quick to recover, however, once confidence bounced from its record low reached during the darkest days of the crisis in March 2009. Indeed, even though confidence improved only marginally, by early 2010, the 10-year real bond yield surged higher by almost 2.5 percent! In 2011, the U.S. economic slowdown and escalating European contagion concerns produced another “fear-based” collapse in the real 10- year Treasury bond yield. As we begin 2012, the dominance of fear is currently illustrated by Treasury investors willingly accepting a “negative” real 10-year Treasury yield.
Exhibit 2 highlights a growing potential risk for Treasury investors. Even though the real bond yield remains at its lowest level since the crisis began, confidence has bounced again in recent months. Something seems likely to give in the next few months. Either renewed confidence in the economic recovery is about to fade or Treasury yields are likely to suffer a significant rise.
Should economic confidence improve this year, the bond market is at risk for two reasons—decaying calamity fears and rising inflation fears. If a consensus agrees the U.S. economic recovery is sustainable and risk of an imminent calamity has diminished, Treasury investors would likely reestablish a normal 2 percent real bond yield (and with a current core inflation rate of about 2 percent, a 2 percent real bond yield implies a 4 percent 10-year Treasury yield—ouch!). However, if the economic recovery is perceived as sustainable, because both monetary and fiscal policies have been too accommodative in recent years, calamity fears would likely be quickly replaced by intensifying “inflation fears.” For these reasons, high-quality bond investors should be particularly concerned with the likelihood of a steady rise in economic confidence this year.
Confidence and Gold Investors?
Rising economic confidence would certainly be good for commodity investors. A sustainable economic recovery would raise commodity price prospects and also heighten inflation expectations. However, as suggested by Exhibit 3, gold may lag other commodity investments (note, the relative price of gold is shown on an inverted scale).
Tags: Consumer Confidence Index, Determinant, Dotted Line, Economic Confidence, Investment Outlook, Investment Themes, Investor, Investors, Job Creation, Meaningful Improvement, Pace, Relationship, Rewards, Slow Progression, Unemployment Rate
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Shanghai Index Leads Global Stock Markets
Monday, December 5th, 2011
“The herd/world markets seem to follow the lead of the Chinese Shanghai Composite Index, said Chris Kimble of Kimble Charting Solutions. “If support remains in place and the Shanghai Index can rally, this would be a positive for global equity markets, the opposite of the situation back at the April highs. Portfolio design/allocations should continue to be influenced by the action of the Shanghai Index.”
I have been alerting readers to this relationship ever since the Shanghai Index became the first major bourse to exit the credit crisis bear market, leading other markets by about five months.
Click here or on the chart for a larger image.
Source: Kimble Charting Solutions, December 2, 2011.
Tags: Allocations, Bear Market, Bourse, Chris Kimble, Credit Crisis, Five Months, Global Equity Markets, Global Stock Markets, Herd, Index Stock, Leads, Portfolio Design, Rally, Relationship, Shanghai Composite Index, Shanghai Index, World Markets
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Dow Dividend Yield Versus 10-Year Treasury Yield (Bespoke)
Thursday, August 19th, 2010
This note is a guest contribution by Bespoke Investment Group.
There has been a lot of talk this week about how “the great bond bubble” is about to crash and that equities look attractive compared to them. One datapoint that commentators have been citing is that the Dow’s dividend yield is now greater than the 10-Year Treasury yield. We’ve heard some say that this is the first time this has happened in decades, but in actuality, the Dow’s yield got much higher than the 10-Year yield as recently as late 2008 and early 2009.
Below is a chart of the Dow’s yield minus the 10-Year yield going back to 1920. (Up until the early 90s, the data is weekly.) As shown, the Dow’s yield did just recently tick higher than the 10-Year yield, which is out of the ordinary but not without precedent. In fact, from 1920 to the late 1950s, the Dow’s yield was higher than the 10-Year yield almost all of the time. In the 60s, 70s, and early 80s, the reading trended significantly lower, but since then the reading has been trending higher.
Since the comparison has been floating around all week, we figured we would highlight the historical relationship to give readers some perspective.
Copyright (c) Bespoke Investment Group
Tags: 10 Year Treasury, 1950s, 60s, 80s, Actuality, Bespoke Investment Group, Commentators, Copyright, Crash, Datapoint, Decades, Dividend Yield, Dow Dividend, Perspective, Relationship
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S&P500 vs. Jobless Claims
Thursday, June 17th, 2010
This note is a guest contribution from Bespoke Investment Group.
After a moderate rally in the pre-market futures, the market has given up all of its gains in early trading. The primary culprit for the reversal was the weaker than expected initial jobless claims report. At a level of 472K, claims for the week ending June 12th were 22K higher than expected. Based on the market’s recent pattern, it will be hard for equities to rally if claims do not show some improvement. As James Paulsen of Wells Capital noted on CNBC this morning, there has been a strong inverse correlation between changes in jobless claims and the direction of the stock market. Below, we have recreated a chart that was highlighted this morning which overlays the four-week moving average in jobless claims (inverted) vs the S&P 500. While the two haven’t exactly been joined at the hip, the relationship between the two has been pretty strong.
Tags: Cnbc, Culprit, Direction, Initial Jobless Claims, Inverse Correlation, Investment Group, Market Futures, Moving Average, P500, Pre Market, Rally, Relationship, Stock Market, Week Ending June
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Adam Hewison: A Sneak Peek S&P 500, Dollar, Gold, and Crude Oil
Tuesday, March 16th, 2010
Adam Hewison is back with four new videos, sharing his outlook for the S&P500, the dollar, gold, and crude oil in the near term. Even if you’re not a trader, Hewison’s seasoned way of explaining ideas is very well informed and useful, and his videos are worth watching, and keeping tabs on.
Title : A Sneak Peek At The S&P 500
This week could be shaping up to be an extraordinary week in the markets. I strongly recommend that traders everywhere take precautionary measure measures to protect capital.
“While the S&P 500 made new highs for the year last week, it did not do so in a very convincing manner. In today’s short video I show you some of the elements that I think should be cause for concern.”
Title: Is The US Dollar Reversing Again?
“It’s been a while since we did a video on the euro/dollar relationship. This relationship may be reversing again based on recent price action. In today’s short video I point out some of the changes we see happening in this market.”
Last week, Jim Rogers discussed his long position in the euro. The reversal of the dollar, may also be a sign that ‘risk’ is back on, though I suspect that will have more to do with the USDJPY cross. For the time being, however, the dollar looks set to weaken against the yen too.
This week could be shaping up to be an extraordinary week in the markets. I strongly recommend that traders everywhere take precautionary measure measures to protect capital.
Title: A Sneak Peek At Gold
This week could be shaping up to be an extraordinary week in the markets. I strongly recommend that traders everywhere take precautionary measure measures to protect capital.
“Last week we gave you a Trade Triangle alert to exit the gold market on the long side. Since that alert was issued gold has dropped significantly.”
Hewison points to a very specific key level of $1091.19. If gold breaches that level, Hewison says it will test around 1060, a he believes that gold will be range-bound for the next while.
Title: A Quick Peek at Crude Oil
Tags: Advertisement, Breaches, Capital Gold, Commodities, Convincing Manner, Crude Oil, Dollar Gold, Elements, Euro Dollar, Exit, Gold, Gold Market, Jim Rogers, Measures, New Highs, Outlook, Precautionary Measure, Relationship, risk, Sneak Peek, Tabs, Trade Triangle, US Dollar, Videos, Yen
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Chart: US Consumer Holds Back Growth
Friday, March 12th, 2010
An interesting chart comes from the Consumer Metrics Institute (via Clusterstock – Chart of the Day) that constructs a US consumption index based on actual transactions data for a range of major discretionary purchases such as cars, houses, durable goods, and vacations.
Although the time series is rather short, the “Daily Growth Index” usually leads changes in US GDP (see chart below). Based on the historical relationship, the Index would seem to indicate slower GDP growth ahead. This concurs with a recent analysis of the US ISM non-manufacturing and ISM manufacturing surveys posted on the Investment Postcards site about ten days ago.
Source: Clusterstock – Chart of the Day, March 11, 2010.
Tags: Advertisement, Ahead, Cars, Consumption, Durable Goods, GDP, GDP Growth, Growth Chart, Growth Index, Houses, Ism Manufacturing, Leads, March 11, Metrics, Postcards, Relationship, Surveys, Time Series, Vacations
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