For the fifth week in a row, M2 has shown growth. And the rate of growth continues to accelerate.
The preliminary December 20th measure stood at $8.834 trillion. Annualized M2 growth over the past 13 weeks was 6.9% vs. annualized growth of 5.9% and 3.2% for the past 26 and 52 weeks.
These numbers are precisely what one would expect of an economy on the rebound. Treasury bonds rebounded slightly from their recent, sharp sell-off, but they continue to offer little value at current levels given the prospects for corporate earnings growth and, unfortunately, future inflation.
Friday, December 31, 2010
Thursday, December 23, 2010
Tonight's Money Supply Report
Yet another bullish money supply report has been released by the Fed this evening.
The preliminary December 13th measure stood at $8.829 trillion. Annualized M2 growth over the past 13 weeks was 6.8% vs. annualized growth of 5.7% and 3.2% for the past 26 and 52 weeks. All figures are pointing to an acceleration of M2.
The easy money has already been made shorting Treasuries, although downside risk remains. These numbers also bolster my believe that GDP growth for 2011 will accelerate, taking corporate profitability along with it. With the S&P up 37% over the past six months, investors may give pause to driving that index to new heights. But the S&P remains fundamentally undervalued, given the prospects for year-ahead earnings growth.
The preliminary December 13th measure stood at $8.829 trillion. Annualized M2 growth over the past 13 weeks was 6.8% vs. annualized growth of 5.7% and 3.2% for the past 26 and 52 weeks. All figures are pointing to an acceleration of M2.
The easy money has already been made shorting Treasuries, although downside risk remains. These numbers also bolster my believe that GDP growth for 2011 will accelerate, taking corporate profitability along with it. With the S&P up 37% over the past six months, investors may give pause to driving that index to new heights. But the S&P remains fundamentally undervalued, given the prospects for year-ahead earnings growth.
S&P Raises Forward Earnings Estimates Again
As of December 21st, Standard and Poor's current operating earnings estimates for the S&P 500 across the next four quarters (4th quarter 2010 through 3rd quarter 2011) are now 91.42. This compares to their previous estimate for the same period, released November 23rd, of 90.99.
As the prospects for more vigorous economic growth in the year ahead improve, I expect to see additional improvements to their earnings estimates.
Despite trading at multi-year highs now, the S&P still remains relatively cheap, at least compared to bonds. (13.8x forward earnings for an earnings yield of 7 1/4% vs. the 10 Year T-Note yield of 3.35%) And yet we are beginning to see certain segments of the market where valuations have become unrealistic. Companies like Netflix and Salesforce.com trade at multiples that are wholly unsupported by their fundamentals. The "momentum" crowd seems intent upon pushing them to even higher, unsustainable prices. Still, as an asset class, stocks as a whole should deliver superior risk-adjusted returns for the next year or two.
As the prospects for more vigorous economic growth in the year ahead improve, I expect to see additional improvements to their earnings estimates.
Despite trading at multi-year highs now, the S&P still remains relatively cheap, at least compared to bonds. (13.8x forward earnings for an earnings yield of 7 1/4% vs. the 10 Year T-Note yield of 3.35%) And yet we are beginning to see certain segments of the market where valuations have become unrealistic. Companies like Netflix and Salesforce.com trade at multiples that are wholly unsupported by their fundamentals. The "momentum" crowd seems intent upon pushing them to even higher, unsustainable prices. Still, as an asset class, stocks as a whole should deliver superior risk-adjusted returns for the next year or two.
Thursday, December 16, 2010
Tonight's Money Supply Report
No surprises here. For another week, M2 showed incremental gains week over week.
The preliminary December 6th measure stood at $8.813 trillion. Annualized M2 growth over the past 13 weeks was 6.7% vs. annualized growth of 5.56% and 3.1% for the past 26 and 52 weeks.
The sell-off in bonds this week has been fairly spectacular. Therefore, I would not recommend anyone take new, short positions against the 30-Year Treasury Bond. I've closed out most of my own short positions against this security and would urge anyone else who's been short the past several months to consider locking in profits.
However, even at these prices, I would still recommend that investors avoid longer maturity Treasuries at this time.
The preliminary December 6th measure stood at $8.813 trillion. Annualized M2 growth over the past 13 weeks was 6.7% vs. annualized growth of 5.56% and 3.1% for the past 26 and 52 weeks.
The sell-off in bonds this week has been fairly spectacular. Therefore, I would not recommend anyone take new, short positions against the 30-Year Treasury Bond. I've closed out most of my own short positions against this security and would urge anyone else who's been short the past several months to consider locking in profits.
However, even at these prices, I would still recommend that investors avoid longer maturity Treasuries at this time.
Tuesday, December 14, 2010
Treasury Bonds In Deep Decline Today
With today's action in the Treasury bond market pits, where the March 30-Year Treasury futures are now under 120, anyone who is short might want to consider covering at least a portion of their position.
There is still no compelling reason to buy long-term Treasury bonds at these levels, but it's possible we'll see a bounce back into the low 120's that could be shorted before bonds resume their course to lower levels.
There is still no compelling reason to buy long-term Treasury bonds at these levels, but it's possible we'll see a bounce back into the low 120's that could be shorted before bonds resume their course to lower levels.
Monday, December 13, 2010
Is It Time to Short China?
If there's a common theme to the way I approach short selling, it's that I'm attracted to potential bubbles. We can debate whether or not gold is really in a bubble state. And I get that there is an argument to be made for being on the long side of the gold trade. But my attraction to shorting gold is a perception of a potential bubble there.
Similarly, I am getting this sense that China is in a bubble. What's more, their decision over the weekend not to raise their rates will only contribute to the formation of a bubble in their economy. Their real estate market is red hot, reminiscent in some ways of the real estate bubble we experienced here before the 2007/2008 bust. Their inflation is accelerating, though it may be unfair to focus on recent numbers as their always volatile food segment has been running around 10% recently. Still, their broader based inflation index continues to rise. Eventually, inflation in China must be addressed.
When it does get addressed, prices of Chinese financial assets are likely to decline as well.
There aren't many ways to take a short position against China, but one that's available to most investors in the United States is the iShares FTSE/Xinhau China 25 ETF (Symbol: FXI). Option contracts trade on this security, so if you're uncomfortable shorting the ETF's outright, put options are available to take a position against this index.
Similarly, I am getting this sense that China is in a bubble. What's more, their decision over the weekend not to raise their rates will only contribute to the formation of a bubble in their economy. Their real estate market is red hot, reminiscent in some ways of the real estate bubble we experienced here before the 2007/2008 bust. Their inflation is accelerating, though it may be unfair to focus on recent numbers as their always volatile food segment has been running around 10% recently. Still, their broader based inflation index continues to rise. Eventually, inflation in China must be addressed.
When it does get addressed, prices of Chinese financial assets are likely to decline as well.
There aren't many ways to take a short position against China, but one that's available to most investors in the United States is the iShares FTSE/Xinhau China 25 ETF (Symbol: FXI). Option contracts trade on this security, so if you're uncomfortable shorting the ETF's outright, put options are available to take a position against this index.
Thursday, December 9, 2010
Tonight's Money Supply Report
M2 continues to accelerate in the most recent money supply report released by the Federal Reserve tonight.
The preliminary November 29th measure stood at $8.812 trillion. Annualized M2 growth over the past 13 weeks was 6.6% vs. annualized growth of 5.5% and 3.1% for the past 26 and 52 weeks. This numbers shows a slight acceleration against last week's money supply report, but weekly fluctuations are typical.
However, the numbers do seem to suggest that the Fed's efforts to reflate are succeeding. Hopefully the current round of quantitative easing efforts will be reconsidered or abandoned altogether.
The preliminary November 29th measure stood at $8.812 trillion. Annualized M2 growth over the past 13 weeks was 6.6% vs. annualized growth of 5.5% and 3.1% for the past 26 and 52 weeks. This numbers shows a slight acceleration against last week's money supply report, but weekly fluctuations are typical.
However, the numbers do seem to suggest that the Fed's efforts to reflate are succeeding. Hopefully the current round of quantitative easing efforts will be reconsidered or abandoned altogether.
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