Make it six weeks in a row now. M2 continues to surge, which should come as no surprise to anyone following this blog.
The preliminary December 27th measure stood at $8.848 trillion. Annualized M2 growth over the past 13 weeks was 6.9% vs. annualized growth of 5.8% and 3.3% for the past 26 and 52 weeks.
At the risk of being redundant, stay away from U.S. Treasuries. I can not stress enough the risk that these securities pose to investors right now.
Thursday, January 6, 2011
Wednesday, January 5, 2011
Three Predictions for 2011
1. Bonds will continue to get clobbered. I've written extensively about what's taking place with M2. Money supply growth will be one of the factors behind the destruction of bond values, but the economic rebound taking place will also add pressure to bonds as investors seek out better investment opportunities. Yields on the 30-Year Treasury Bond should easily top 5% before year's end. Unfortunately, many investors will learn that their "flight to safety" wasn't so safe after all.
2. Stocks will continue to recover, but volatility will increase. Volatility in the bond market will make itself felt in stocks. But the trend for growth in corporate profitability remains intact. And a positive yield curve is extremely helpful for growing corporate profits. This is a great set-up for the S&P, if you can stomach the roller coaster ride.
In many ways, this year is reminiscent of 1994/1995. Few remember the bond crash of 1994, but there's a great paper that discusses its aftermath here.
3. The U.S. dollar will firm up against most currencies. Unfortunately, this will be bad news for commodities investors, as a stronger dollar will dampen gains for most raw materials. I might not bet against $100/bbl oil. The markets for crude are always insane, and the same goes for gold. But as a whole, expect commodities to post lacklustre returns for 2011.
2. Stocks will continue to recover, but volatility will increase. Volatility in the bond market will make itself felt in stocks. But the trend for growth in corporate profitability remains intact. And a positive yield curve is extremely helpful for growing corporate profits. This is a great set-up for the S&P, if you can stomach the roller coaster ride.
In many ways, this year is reminiscent of 1994/1995. Few remember the bond crash of 1994, but there's a great paper that discusses its aftermath here.
3. The U.S. dollar will firm up against most currencies. Unfortunately, this will be bad news for commodities investors, as a stronger dollar will dampen gains for most raw materials. I might not bet against $100/bbl oil. The markets for crude are always insane, and the same goes for gold. But as a whole, expect commodities to post lacklustre returns for 2011.
Friday, December 31, 2010
Tonight's Money Supply Report
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.
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.
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.
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