Theory

Is the Bond Bubble Comparable to the Dot Com Bubble?

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August 19, 2010
Is the Bond Bubble Comparable to the Dot Com Bubble?

Barry Ritholtz has an intriguing post up,”Do US Bonds Resemble Dot Com Stocks?” His basic thesis, as backed up by observations from Tobias Levkovich and Dave Wilson, is that USTs are acting like dot com stocks circa 1997-1998 in three key ways: 1) You knew momentum was taking them (much) higher; 2) You knew...
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Paul McCulley of PIMCO: Print or the Dow Gets Whacked

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August 18, 2010
Paul McCulley of PIMCO: Print or the Dow Gets Whacked

Paul McCulley, a managing director at bond giant PIMCO, just recently posted his latest Global Central Bank Focus. (You can read it in full here.) I’ve been reading McCulley’s monthly missives for years, and I almost always enjoy them. McCulley is down to earth and extremely smart. He is also a die-hard Keynesian, which...
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Integrated Macro Analysis, Part I: 3-D Structures and General Conditions

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August 17, 2010
Integrated Macro Analysis, Part I: 3-D Structures and General Conditions

Note: This article is the first in a series. Also available: IMA Part II: The Market Tower IMA Part III: Horizontal & Vertical Exposure Legendary poker player David “Chip” Reese, who routinely earned several million dollars a year as a regular in the Bellagio’s “Big Game” before his untimely death at age 56, once...
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Why Investors Should Be Terrified of Deflation

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August 13, 2010
Why Investors Should Be Terrified of Deflation

In recent months, some investors and traders have openly wondered “Why would deflation be so bad.” Well, that’s a pretty involved topic. But from a simple market standpoint, we can look to the Japan experience: We’ve become so used to Japanese Government Bonds yielding next to nothing, that’s it’s easy to forget that...
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Evidence of Systemic Credit Breakdown

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August 12, 2010
Evidence of Systemic Credit Breakdown

Sobering stuff… PHOENIX — During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back. The delinquency rate on home equity loans is higher than all...
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Cheap Money (Them That Has Gets)

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July 30, 2010
Cheap Money (Them That Has Gets)

McDonald’s this week raised $450 million in 10-year debt at 3.5%, a record low yield for a large batch of debt issued by a U.S. corporate borrower. — WSJ, Global Corporate-Bond Boom Gains Pace As the old saying goes, “Them that has gets.” Yield-hungry investors, desperate for a place to put cash to work,...
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JS Market Notes: The Line of Least Resistance

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July 1, 2010
JS Market Notes: The Line of Least Resistance

I was not pitting my tape-reading knack or my hunches against chance. The inexorable logic of events was making money for me. - Reminiscences of a Stock Operator In Reminiscences of a Stock Operator — arguably the greatest trading book of all time — Jesse Livermore (aka Larry Livingston) placed deep emphasis on two...
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Psychology of a Market Cycle

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June 30, 2010
Psychology of a Market Cycle

This is pretty cool, from Wall Street Cheat Sheet via TBP. Click the image for larger view. I also have a comment posted on TBP relating to emotional extremes and market sentiment, which you can find here.
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Michael Pettis: “This is the big one”

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June 28, 2010
Michael Pettis: “This is the big one”

Buckle your seat belt Dorothy, cause Kansas? It’s goin’ bye-bye. – The Matrix Michael Pettis, the Beijing-based deep thinker over at China Financial Markets, has an excellent piece up titled What might history tell us about the Greek crisis? It’s not just about Greece, though, and more about historical precedents as they extend to...
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A Clear Example of “Buy the Rumor, Sell the News” (or Vice Versa)

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June 24, 2010
A Clear Example of “Buy the Rumor, Sell the News” (or Vice Versa)

You’ve probably heard the old expression, “Buy the rumor, sell the news.” Wednesday’s action gives a clear example of exactly what that means. XHB, the popular homebuilders ETF, has been in a pronounced downtrend since late April. On June 23rd, the market was rocked by record low new home sales — a number considered...
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Outlier Profits and Reversion To the Mean

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June 23, 2010
Outlier Profits and Reversion To the Mean

Profit margins for U.S. companies are likely to tumble from last quarter’s record, a decline that will lead to much lower earnings than analysts expect, according to economist Andrew Smithers… - BB, Profit Margin Outlook for U.S. is ‘Extremely Bad’ One of the major equity juicing factors for the 2009 rally was behind-the-curve analysts....
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Why Wall Street Analysts Suck

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June 22, 2010
Why Wall Street Analysts Suck

Joshua Brown at The Reformed Broker has a great post up, Why They All Got the BP Call Wrong. It’s about the folly of Wall Street analysts rushing in to call BP “cheap” and a “buy” so soon after the Deepwater Horizon blowup, even when the risks — legal, environmental and political — were...
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When Deflation is Inflationary

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June 18, 2010
When Deflation is Inflationary

Gold is breaking out to new all-time highs today — in nominal terms at least. (Inflation adjusted highs would put gold above $2,000 per ounce.) This is telling against the backdrop of a low and falling Core CPI (Consumer Price Index). The above chart, from Bespoke Investment Group, shows that Core CPI is the...
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The Astonishing Hypocrisy of Efficient Market Theorists

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June 15, 2010
The Astonishing Hypocrisy of Efficient Market Theorists

I thought random walk was bullshit… The whole idea that an individual can’t make serious money with a competitive edge over the rest of the market is wacko. - F. Helmut Weymar, founder of Commodities Corp If one could point to a single organization that really kicked things off — a sort of Mount...
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Oh-So-Predictable Analysts

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June 14, 2010
Oh-So-Predictable Analysts

Barry Ritholtz has a post up, Wall Street Still (Always) Too Bullish, highlighting a lament from Alan Abelson over at Barrons. Abelson’s gist, after going over the range of Wall Street analyst predictions for the year: What really caught our eye, though, is that not a single one of these worthies was bearish. Which...
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