Reported to be up "seasonally". I don't trust the "seasonal" adjustments. So, when you go to the government website for the raw data, you see that factory orders were down y/y and have been down y/y 9 months in a row. By now, most that read my posts know I'm very skeptical, I and everyone else have reason to be as today's financial reporting is poor-bordering on habitual lying. It is my speculation that "good news" improves ratings-Bloomberg, CNBC etc must be desperate for ratings.
It is so sad that everyday we have our government lying to us, the press is lying to us-just about everything is a "con". When the dung hits the fan, it is not going to end well.
Beyond China selling treasuries, another likely large seller will be Saudi Arabia as they need to raise funds to cover their increasing budget deficit-now approaching 20%. If interest rates move too high, with all this "forced" selling, the logical buyer will be the FED. Also a factor is that $400 billion of government securities on the FED's balance sheet will mature in 2016-shrinking its balance sheet by that amount. That is tightening in my book. So, when the FED wakes up, perhaps after a negative shock, I'm putting out a number that QE4, or by any other name will have to be $600 billion to $1.2 trillion, to absorb the selling of treasuries by large holders-China, S.A. and others, to counter the shrinking of the FED's balance sheet, to give the world enough $s to service $ denominated debt and to get world GDP growing faster.
Lets make it $60 billion/month for 10 to 20 months.
Again to continue the thought, I will become a buyer of size-especially of tech and commodities-the "reflation trade" if you will when the FED is adding enough liquidity to get the $ on a downward path.
When that happens, Laslo Byrinyi may just be right in his call for S&P 500 to climb to 3200 sometime in 2017. With ECB, BOJ, FED and PBOC all doing QE, and so much slack-both productive capacity and labor-available, world GDP could accelerate for a couple years before inflation is a problem. Inflation would force the stoppage of QE programs. At this point in time my sense is inflation would have to get above 3% in the US and EZ, but perhaps more importantly inflation would be changing people's behavior when individuals and businesses start to buy stuff ahead of when they need it to beat price increases.
To complete the thought, the FED has been tightening, but because of recent market gyrations had to add liquidity. When the recent "storm" passes, I think the FED will get back to tightening-with a rate increase as part of that process. Come Oct or Nov, when the PBOC devalues their currency again, or some other negative shock, the FED will have to add liquidity again. For example, the PBOC has been selling treasuries to keep its currency from falling faster, should they continue to sell treasuries the FED may have to become a buyer (QE) to keep interest rates from rising too fast. Point is, there could be all sorts of negative shocks, so with stocks, bonds and real estate at very high valuations, and the financial system highly leveraged (now greater than 20/1-more debt has been added than M1 since 1/1/15), the FED cannot allow a self reinforcing negative selling loop to take hold, so the FED will ease again. The next time however, enough damage may have been done:
1)strong $ hurts mfgering
2)Low commodity prices put bonds, bank debt and jobs a risk in those industries
3)Slowing world GDP growth makes debt servicing, for many countries and companies much more difficult
such that the FED may be forced into another "QE" type program again. My prior suggestions were open market operations of REPOs that roll-over which would be QE of t-bills vs prior QE that bought longer maturity notes, bonds and mortgages.
In summation, the FED's bias is to tighten, they are going to take it to the limit again where the markets get spooked by a negative "shock" to only sell off hard to force the FED to add liquidity. US and world macro-econ damage will occur, forcing the FED into a longer lasting "easing" program. If you weren't able to scoop up some bargains in recent days, you will have another chance later this year perhaps into the 1st Q of next year.
Meanwhile, PCTI, WPX, KTCC and KCG are great buys near the bottom of the recent trading ranges.
I have read that the FED injected $18.5 billion into financial markets-through reverse repos-on Monday 8/24 and another $4.5 billion on Wed 8/26-for a total of $23 billion. I have also read, in recent days that before the US got off the gold standard (1973) debt/M1 meandered around 4-5/1. In 2008, it peaked at about 37/1. When a negative catalyst arrived (housing implosion), everybody wanted $s, but given the amount of debt vs the amount of $s, there was an extreme shortage of $s. In came the FED with QE-supplying the market with $s. As of, 1/1/15 debt/M1 is down to 20/1-much better than 37/1, but still very high relative to pre Bretton Woods.
Earlier this week, a negative catalyst arrived and the "market " wanted more $s than was available-the FED had to inject or let the markets get into a self reinforcing negative selling loop-which would have taken down markets and the economy to a level that would be consistent with maybe 10/1 debt/M1, maybe 15/1 maybe 5/1-who knows. But the FED did not want to know-it would have been to horrifying. What am I getting at? The FED "put" is still in, but perhaps more importantly, the case for permanent QE or "active" open market operations or the consistent rollover of REPOs-so banks never have to buy back bonds from the REPOs is the path the FED will take. Part of that path will be to make sure debt/M1 won't get above 20 for any period of time. Indeed the FED, may have to do new rollover of REPOs to get the debt/M1 ration down to 10/1.
Strong $, falling commodity indexes, and slowing world GDP growth are all signs of not enough $s-the FED has been tightening. The FED has to inject much more liquidity.
Because there was no SEC filing after two weeks, I "assumed" there was no damage, so I bought shares near the close at $5.27.
Thank you arcgriffon for your input.
Otherwise, after the close, the FED weekly activity that I follow had the FED add liquidity in three areas I watch: M2, free bank reserves and reverse repos. It is my conclusion the FED added some liquidity to the financial system-perhaps in response to market gyrations. Missing, though, was an increase in the balance sheet, which was down $13 billion. So, until that turns upward, I will be very leery of market rallies and will be prone to sell into strength. Although recent buys in PCTI and KCG will be core holdings as both are cheap relative to their favorable business prospects.
Bit of a buying panic Wed and Thurs, but to me it is a suckers's rally-with the sell off earlier in the week a "shot across the bow" for worse to come later on.
Until rallies are accompanied by a falling $-because the FED is adding liquidity most likely in the form of open market operations-then the issues that were the causation of the recent market meltdown will remain.
Of special interest is, "Has oil bottomed?" If so, that would be a major plus vs deflationary forces. Still, I expect China to devalue again-exporting more deflation to the US. I'm looking for another major sell off in Oct.
Sorry, haven't followed in some time-don't know what it is doing these days.
I do have a call into PCTI's CFO to ask if Tianjin plant was damaged in the explosion there a couple weeks ago. So far, no response from him.
Thanks for reminding me about KCG as I bought more today in the low $10.30s. Increased volume , volitility and troubles at ITG should be good for their business.
I also bought, "small ball", ONB and RF as I do expect the FED to ease sometime in the next few months-which will be good for the financials.
Hedge Fund Bridgewater says FED's next move is to ease via QE. Until they do, I'm not a buyer of size as the FED may just wait until a couple bad jobs number before they move.
The other good news is the $, as measured by the DXY, has moved down quite a bit in the last two weeks and has been net/net down since peaking in mid July. This development is setting up a positive backdrop for commodities and stocks. With the DXY down, the currency markets are perhaps "anticipating" the FED will indeed have to add liquidity to financial markets.
On that note, I'd like to offer up my notion of what QE really was. Normal open market operations, by the FED, has them buying and selling short term government securities- T-bills. QE has the FED buy long dated notes and bonds as well as mortgage bank securities. Both add reserves banks hold at the FED, both increase the FED's balance sheet. So, if the FED starts to "ease" they can do so with open market operations, without public fanfare, to achieve very similar objectives as QE. As I've posted before, because of deflationary forces around the world, being exported to the US, the "effective FF rate is 3%+. With the 10-yr near 2%, the yield curve is inverted-which has lead to recessions many times in the past. In my view, the FED has to ease or the US will go into recession. They can still raise interest rates a little bit, but ease substancially with open market operations.
The good news is as oil bottoms, it serves as a world tax cut. Because rig counts have stabilized, job losses have slowed in the oil/gas sector, so that negative job loss is mitigated. Going out into the future, lower oil prices will be a net positive for the US economy. I will also add that when oil bottoms, stock markets will bottom within days.
The FED, which has been tightening since Aug 2014, is causing extreme investor angst as a "grab for liquidity trade" grips the world. The shortage of $s, is causing just about all markets to sell off to a level that is supported by the FED's restrictive policy and then some as most markets overshoot to the upside and downside. Of course this time it is the downside.
At this point in time, for the S&P 500, I'm thinking it will bottom in the 1800-1850 area-which is a 13-16% sell off from recent highs. Part of this "guess" is how much "pain" the FED will inflict with their "game of chicken". The longer they wait to add liquidity, through open market operations, the lower stocks and commodities will go. So unless we get strong comments of QE4 is coming, then we will just have to wait for the FED's weekly data that come our each Thursday.
Bought more at $6.60 just before the close. Of the NG/oil companies I have researched so far: WPX, PDCE and SM are hedge the most for the rest of 2015 and into the 1stH of 2016.
NG y/y production was 4.2%. Of course, I would prefer less than 4%, but a trend is developing of around 4%. Y/Y demand was up 10.6%.
With regard to the FED, M2 was up $26 billion, which took the 10 week moving average to 6.8%-close to the minimum of 7% I think will be forced into later in the year-unless they are smart and start doing it now. However, the balance sheet was flat and the monetary base was down. In my view the FED is still "tightening"-hence the broader stock averages are headed lower.
With China PMI hitting a 6-yr low in Aug-the PBOC will have to further ease. Expect required reserve ratios to be cut this weekend. The FED has to get into this "easing" game, or their game of chicken will send the US into recession.
Picked up some more WPX, at the close, at $7.35. In order, I like WPX, SWN, ECA and UPL, but may not buy any more until next week after get another read on NG y/y production stats.
ECA is fine, but I'm waiting a little longer to buy them as they are more "oily" than WPX, SWN and UPL.
If I have read their company info correctly, they have no debt due till 2019, and have extended their revolver to 7/2020. However, I did not find out to what extent they are hedged for the rest of 2015 and into 2016. Whereas WPX is hedged pretty well and has insider buying.
Although I still think the broader averages need to sell off more and will because the FED needs to "ease" vs tighten, I did buy SWN, UPL and WPX as today's bearishness is a decent enough entry point to buy NG and oil-with a NG bias.
Even though I think broader stock averages still have to sell off, I nibbled on SWN and UPL today as a start to building a much larger NG portfolio.