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merenkov 72 posts  |  Last Activity: Jun 1, 2015 12:22 PM Member since: Jun 7, 2004
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  • merenkov merenkov Apr 8, 2015 8:13 PM Flag

    I've traded RIG in the past, and there is absolutely no comparison between Shell, a fully integrated oil powerhouse with a market cap of nearly $200 billion (and a long and reliable dividend history), and RIG, which currently has a market cap of around $6 billion (and sketchy dividend history). Shell dramatically reduced its dividend during the financial crisis, but for only four quarters, and it came back stronger than before.

  • My current target was a 3% yield on the 30Y, so I pulled the trigger at the 3.05% level this morning. If yields keep moving up, I'll buy more at 3.25%, then 3.50%, etc. The current price action reminds me of the "taper tantrum" in late 2013 (I also bought then, using the same dollar-cost averaging strategy). Even though yields were higher at that time, the current yields are arguably a better value, as our 0% YoY inflation rate is much lower than it was then. I'd love to see a bond flash crash, to go all in...

  • Reply to

    Bought some 30Y treasuries this morning...

    by merenkov May 12, 2015 11:31 AM
    merenkov merenkov May 13, 2015 3:34 PM Flag

    In the few historical instances where we've seen a major financial crisis combined with a severely over-indebted economy, long term rates didn't bottom until 14 years after the financial crisis (although Japan's recent experience is going to extend that average time period even further). We likely won't see a true bottom in rates until at least 2022 (probably later). Until then, we'll be stuck in a trading range, and sometime in the next 12 months I expect to see rates fall lower than most investors believe possible.

  • The Atlanta Fed has a real-time model for estimating the current quarter’s GDP called GDPNow, which basically mimics the methodology used by the BEA to calculate GDP at the end of each quarter. Not sure why it doesn’t get more attention, perhaps because it’s still relatively new (and volatile). At any rate, their estimate for Q1 2015 has dropped from 2.3% just 5 weeks ago (in line with current Wall Street consensus) to 0.6% as of March 12th. The main culprit for the downward revisions has been a fall in CapEx spending, most of which can be traced to the oil and gas industry. But I thought the collapse in the price of oil was supposed to be a net positive for the economy, lol…

  • Reply to

    I just laugh and laugh and laugh

    by neodinium1978 Mar 6, 2015 8:37 AM
    merenkov merenkov Mar 27, 2015 5:39 PM Flag

    Every time you post here, an angel gets his wings and bonds go into rally mode. So thanks for that! Bonds have rallied about 5% since I got back in, so the only thing making me cranky today is the fact that Villanova lost in the second round of the tournament. You can’t imagine how beautiful my bracket would be if Nova was still in it…

  • Reply to

    Bonds in tulip land

    by the_invisible_hand2010 Mar 22, 2015 8:52 PM
    merenkov merenkov Mar 23, 2015 12:56 PM Flag

    With YoY inflation in the US either flat or negative for 2015, a 2.5% yield on the 30Y is right in line with historical norms (actually a little on the high side, as the rate has averaged 200 basis points over inflation for over a hundred years).

  • Reply to

    I just laugh and laugh and laugh

    by neodinium1978 Mar 6, 2015 8:37 AM
    merenkov merenkov Mar 19, 2015 10:35 AM Flag

    It makes me laugh, this post. :)

  • Reply to

    Atlanta Fed’s Q1 2015 GDP estimate drops to 0.6%

    by merenkov Mar 16, 2015 10:10 AM
    merenkov merenkov Mar 17, 2015 12:17 PM Flag

    Since early February, 90% of the economic data has missed expectations. This has pushed Bloomberg’s Macro Surprise Index to its worst start to a year on record! The one supposed bright spot, employment growth, is mainly creating low-paying jobs and stagnant wages (keeping in mind that employment is the ultimate lagging indicator anyway, as most of those new jobs were initially planned/discussed/posted months ago when everyone thought the economy was taking off). If the Fed were to raise rates anytime soon, it’s because they’re worried about the asset bubbles they’ve helped create, not because they think the economy is getting overheated.

  • Surprised no one is talking about this here, as I think this is partly responsible for today’s move up:

    NEW YORK, March 13, 2015 (GLOBE NEWSWIRE) -- The NASDAQ OMX Group, Inc. today announced that Walgreens Boots Alliance, Inc. (WBA), will become a component of the NASDAQ-100 Index (Nasdaq:NDX), the NASDAQ-100 Equal Weighted Index (Nasdaq:NDXE) and the NASDAQ-100 Ex-Technology Index (Nasdaq:NDXX) prior to market open on Monday, March 23, 2015. Walgreens Boots Alliance, Inc., will replace Equinix, Inc. (EQIX) which is being removed as a result of their conversion to a REIT.

  • Several months behind the curve (as usual), the Wall Street Journal has an article in today’s edition reviewing Greenspan’s “conundrum”, that time when the Fed raised short-term rates by 350 basis points (at 17 consecutive meetings, from May 2004 through February of 2006) and the yield on 30Y treasuries actually fell (by around 85 bps).

    According to the article, some bond strategists are just now waking up to the fact that we may be encountering “Conundrum 2.0”, an era where long term rates stay low (or drop even further), even in the event the Fed foolishly begins to raise rates this year. As I’ve said many times, the long bond is going to do what it wants to do, and there’s little the Fed can do about it. Titled ‘Pushing and Pulling on Rates Riddle’, the article is a must-read for anyone thinking about shorting long-term treasuries.

  • Reply to

    The Dot Plot

    by neodinium1978 Mar 17, 2015 5:49 AM
    merenkov merenkov Mar 17, 2015 12:33 PM Flag

    I doubt the Fed raises rates in any meaningful way, but even if they do it doesn’t necessarily mean that long-term rates will follow. From May of 2004 until February of 2006, the fed funds rate increased by 350 bps. During that same period, the yield on the 5Y note increased by only 80 bps, and the yield on the 30Y actually fell by 85 bps. The rate increases reduced investors' inflation expectations, which is the main determinant of long-term rates. (If you don’t remember this episode, try googling “Greenspan’s conundrum” for a refresher.) Bottom line is that the Fed has little control over the long end of the Treasury curve.

  • merenkov merenkov Mar 11, 2015 12:27 PM Flag

    Production actually hit a new high of 9.366 mm bls/day. And the 4-week moving average of inventory build, at 7.8 mm bls/week, remained unchanged.

  • After February’s dead cat bounce, commodities have resumed their slow death march, with the CRB Commodity Index now down almost 9% since the first of the year. As a reminder, this is not just oil-related, as it continues a four-year trend. The index dropped 8% in 2011; 3% in 2012; 5% in 2013; and 18% in 2014. It is now down 43% from its May 2011 peak.

  • Reply to

    I just laugh and laugh and laugh

    by neodinium1978 Mar 6, 2015 8:37 AM
    merenkov merenkov Mar 11, 2015 12:09 PM Flag

    Is it really that hard to imagine that Euro bond investors, who’ve literally been front-running the ECB for years, might finally take profits and rotate into US treasuries? Fixed income departments of various pension funds and insurance companies are required to be 100% invested in bonds. What else are they going to do with their ECB proceeds?

  • The Atlanta Fed just lowered its projected Q1 GDP growth rate to 0.0%. For those not familiar, the Atlanta Fed has a real-time model for estimating the current quarter’s GDP (called GDPNow), which mimics the methodology used by the BEA to calculate quarterly GDP. As recently as mid-February, the model was forecasting 2.3% GDP growth for the quarter, but has since dropped every few days as new data was released. Consensus on Wall Street is still around 1.8%, lol…

  • It hasn't been $3.44 in years, not sure what Yahoo's problem is there. So based on the current price of around $61.40, that $3.76 results in a yield of 6.1%, pretty juicy. And I've yet to run across an analyst who thinks that the announced acquisition will affect the dividend policy.

  • The Atlanta Fed’s GDPNow forecast of 0.1% for the first quarter ended up being quite accurate, as the BEA number came in yesterday at 0.2% (and as a reminder, the 1Q GDPNow forecast dropped to the 0.3% range in mid-March, when the street consensus was still around 2.4%). This morning the Atlanta Fed released its initial estimate of second quarter GDP growth: 0.9%. This can be a volatile number that will become more accurate as the data streams in over time, but I don’t think 0.9% is the hope and change everyone was looking for…

  • merenkov merenkov May 3, 2015 12:28 PM Flag

    I never held TLT, always held 30Y bonds directly. I sold when the yield on the 30Y was around 2.5% (missed the 2.25% level), but actually started buying back in around the 2.8% level. If we get to 3%, I'll buy some more, then again at 3.25%, and so on. This is how I always play it. We'll be in this low trading range for another decade or two. At a 3% yield and 0% inflation, the long bond will arguably be trading at one of its best values in years (anytime you can buy at 300 basis points over the rate of inflation, it's generally a good value).

  • Reply to

    though 2.20 might be the limit

    by barc37000 May 6, 2015 12:40 PM
    merenkov merenkov May 6, 2015 1:06 PM Flag

    I've been in and out of 30Y bonds three times in the past five years. I can't even remember a time when you could buy the 30Y at 300 basis points over the rate of inflation (yields on the 30Y have averaged 200 bps over the inflation rate for the past 140 years). The momentum chasers are about to provide us with a nice buying opportunity...

  • merenkov merenkov May 11, 2015 12:18 PM Flag

    You could have said the same thing about TLT in the first 3 weeks of September (when the yield on 30Y bonds increased 30 basis points), but if someone had sold then, they would have missed the huge move from October through January. You could also say the same thing about a number of dividend stocks and REITS currently. It all depends on where you think the real economy is headed over the next 6-12 months.

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