El-Erian: Markets Not Facing Reality of Slow Economy

Saturday, January 16th, 2010

Financial markets have failed to price in the remaining problems that bedevil a long-term economic recovery, Pimco’s Mohamed El-Erian told CNBC.

“You come to the conclusion that the market simply hasn’t priced in the reality of what we talk about every single day,” said El-Erian, who helps run the world’s largest bond fund.

“What you’re getting is a recovery phase, a healing phase that was artificially created,” he said. “The history of crises is very clear. They expose structural problems and when you look at the structural problems you need a structural response, and so far we’ve only had a cyclical response.”

A lasting recovery will only be built on real growth and not that which is stimulated by government, he said.

Source: CNBC, January 15, 2010.

Tags: Bond Fund, Cnbc, Conclusion, Crises, Economic Recovery, Facing Reality, Financial Markets, Mohamed El Erian, Recovery Phase, Single Day, Slow Economy
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Treasury Bills - Is This The Low?

Tuesday, January 13th, 2009

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

In the chart below, please note the very simple channel in long bond futures going back to the beginning of the bull market. Prices seem to top every 5 years and, right on schedule, they’ve topped again.

Click here or on the chart below for a larger image.

The usual correction is in the 18-25% range if it revisits the lower end of the channel. From the top, at roughly 142, a 25% move would be to 106 or so, which is still a whopping 4.4%. I think is far too low considering a) what actually now sits in the Treasury and b) the sheer amount of global supply that is forthcoming. Even in a slow economy, I think foreigners will need to be sellers. I am finishing up my Mortgage Backed Securities program today and heading to more cash.

One more thing. The secular bull market in stocks, in my opinion, ran from 1974 to 2000. Twenty-six years. The bull market in bonds looks like it ran from 1982-2008, also twenty-six years and exactly the length of time I have been at this. With the “blow-off” move we just had, my guess is that the top is in, perhaps for a very long time … like a decade.

Using a Fibonacci analysis leads us to targets that are … well, nauseating and could be a 50% retracement of the whole move. So buyers of long bonds beware. And if you want to refinance, and can actually find a good program, I wouldn’t hesitate. That goes for individuals and corporations alike. Why the Treasury is BUYING bonds at these levels instead of selling long Treasuries is beyond me.

Click here or on the chart below for a larger image.

* 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.

Tags: Asset Management, Bond Futures, Buying Bonds, Fibonacci Analysis, Fixed Income, Foreigners, Global Supply, Income Securities, Industry Experience, Investment Banks, Length Of Time, Mortgage Backed Securities, Portfolio Management, Retracement, Secular Bull Market, Securities Industry, Slow Economy, Treasuries, Treasury Bills, Treasury Bonds
Posted in Bonds, Economy, Markets | No Comments »