Stock, Bonds, Commodities
More on stocks and bond, plus something on commodities:
Stocks
Based on the mild reaction to the election, it looks as though not much of anything will happen, meaning stocks will continue to meander in the trading range they've been in for weeks. So what you can conclude is that exactly what happened on Election Day - Republicans taking the House, Democrats holding the Senate - was what the market had priced in already.
Question: What about that old saying, "Buy on the rumor, sell on the news"? If market participants bought on the "rumor" of a Republican House and a Democrat Senate, shouldn't there be a sell-off now that the news is finally in?
First, a lot of these sayings usually contain a grain (or more) of truth. But you wouldn't want to bet the ranch on them. Second, there is that small matter of the Fed's "quantitative easing" program, aka QEII. My guess is that the lid stays on for a while. And in that case, it seems the market priced in "moderate" quantitative easing," which is exactly what the Fed announced when they said they'd buy $600 billion of treasuries over the next 8 moths.
Unless the market really drops (and I'd be surprised), really takes off (more of a possibility) we may be locked back in that trading range for the time being.
Bonds
More chart evidence that interest rates are getting ready to spike up, which isn't such a big deal. Interest rates are always moving around, more or less. What we're really all waiting for is a sign that the great bull market in bonds that started in 1980 is finally over. And we're waiting for enough evidence to cause us to take some action - something that presents an opportunity to make money.
Bill Gross of Pimco (one of the smartest folks out there on bonds) said in his monthly letter that the bond bull market was finally over. But that was a kind of "on high" pronouncement by the great bond king. It's like Churchill talking about the "end of the beginning" of World War II - interesting, but the rest of us soldiers still have to deal with all those bullets flying by our heads out here on the battlefield.
Commodities
Now here's some really interesting stuff, because the year-to-date numbers really do grab you. Once you get past a couple of energy items - natural gas down -39.75%; oil up +4.08%, just look at the following numbers year-to-date for this group of commodities: wheat +13.97, copper +16.30, platinum +16.66, orange juice +20.48, corn +28.93, silver +42.14, coffee +48.29. Those are big jumps.
So what's it going to mean to us? I mean, I haven't seen the price of my favorite coffee, as an example, to up at all. Well, the thing to remember is that the big producers actively hedge against price volatility. They use the futures market, not as speculators, but to hedge their prices so they don't have to deal with normal - or even temporarily extreme - price volatility. But that's only going to work for about 6 months or so. If prices really stay high, we may start to see prices of all sorts of food rising sometime in the first quarter of 2011. And if prices stay up, we may wind up in what some people are predicting will be a really big jump in all the stuff we buy to feed ourselves.
Stocks
Based on the mild reaction to the election, it looks as though not much of anything will happen, meaning stocks will continue to meander in the trading range they've been in for weeks. So what you can conclude is that exactly what happened on Election Day - Republicans taking the House, Democrats holding the Senate - was what the market had priced in already.
Question: What about that old saying, "Buy on the rumor, sell on the news"? If market participants bought on the "rumor" of a Republican House and a Democrat Senate, shouldn't there be a sell-off now that the news is finally in?
First, a lot of these sayings usually contain a grain (or more) of truth. But you wouldn't want to bet the ranch on them. Second, there is that small matter of the Fed's "quantitative easing" program, aka QEII. My guess is that the lid stays on for a while. And in that case, it seems the market priced in "moderate" quantitative easing," which is exactly what the Fed announced when they said they'd buy $600 billion of treasuries over the next 8 moths.
Unless the market really drops (and I'd be surprised), really takes off (more of a possibility) we may be locked back in that trading range for the time being.
Bonds
More chart evidence that interest rates are getting ready to spike up, which isn't such a big deal. Interest rates are always moving around, more or less. What we're really all waiting for is a sign that the great bull market in bonds that started in 1980 is finally over. And we're waiting for enough evidence to cause us to take some action - something that presents an opportunity to make money.
Bill Gross of Pimco (one of the smartest folks out there on bonds) said in his monthly letter that the bond bull market was finally over. But that was a kind of "on high" pronouncement by the great bond king. It's like Churchill talking about the "end of the beginning" of World War II - interesting, but the rest of us soldiers still have to deal with all those bullets flying by our heads out here on the battlefield.
Commodities
Now here's some really interesting stuff, because the year-to-date numbers really do grab you. Once you get past a couple of energy items - natural gas down -39.75%; oil up +4.08%, just look at the following numbers year-to-date for this group of commodities: wheat +13.97, copper +16.30, platinum +16.66, orange juice +20.48, corn +28.93, silver +42.14, coffee +48.29. Those are big jumps.
So what's it going to mean to us? I mean, I haven't seen the price of my favorite coffee, as an example, to up at all. Well, the thing to remember is that the big producers actively hedge against price volatility. They use the futures market, not as speculators, but to hedge their prices so they don't have to deal with normal - or even temporarily extreme - price volatility. But that's only going to work for about 6 months or so. If prices really stay high, we may start to see prices of all sorts of food rising sometime in the first quarter of 2011. And if prices stay up, we may wind up in what some people are predicting will be a really big jump in all the stuff we buy to feed ourselves.
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