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merenkov 190 posts  |  Last Activity: Aug 27, 2015 9:48 PM Member since: Jun 7, 2004
  • Reply to

    Q2 GDP revised up from 2.3% to 3.7%

    by merenkov Aug 27, 2015 11:22 AM
    merenkov merenkov Aug 27, 2015 9:48 PM Flag

    There's no good reason to hike rates based on current economic data (if there were, why didn't they hike last summer, when we actually had inflation and better GDP numbers?), so I'm arbitrarily choosing the stock market as my indicator. By the way, I think a rate hike would be a net positive for long-term bonds, as the market would price in slower economic growth and even lower inflation (or likely deflation).

  • Reply to

    CHINA SELLING BONDS

    by twornartini Aug 25, 2015 5:32 PM
    merenkov merenkov Aug 27, 2015 11:45 AM Flag

    The stat I've always heard is that foreigners in total own only 8% of Treasuries with maturities greater than 10 years. That would imply that the Chinese account for a small fraction of the total, although I haven't been able to find a good site that breaks down foreign ownership by maturity to confirm.

  • This is where I would normally point out that the all-time record inventory build in Q2 is going to massively subtract from GDP in Q3 or Q4 (or whenever the ugly liquidation occurs). But who am I kidding, the only think that matters is if the S&P 500 continues to climb. If it does, we get a rate hike in September. If it crashes again near the meeting, we don’t. Simple.

  • Reply to

    Tread lightly

    by skeptic501 Aug 23, 2015 10:36 PM
    merenkov merenkov Aug 27, 2015 12:27 AM Flag

    Oh, so you follow my posts that closely, haha. We saw negative CPI prints for the first five months of the year, so that has happened. Maybe I was overly optimistic (pessimistic?) on the level of the 10Y, but the year isn't over yet, so we still don't know, do we? Europe and Japan, though (and now China) are clearly exporting their deflation to us...

  • Reply to

    Tread lightly

    by skeptic501 Aug 23, 2015 10:36 PM
    merenkov merenkov Aug 26, 2015 11:15 PM Flag

    I've been posting on this board for over two years now. Everything that I've said was going to happen has happened, sometimes even exceeding my expectations (rates fell further than most imagined possible back in January). I sold my entire portfolio of 30Y treasurys in February (missed the absolute bottom in yields, but great return overall). I began buying again when the yield on the 30Y rose above 3%, and was prepared to dollar-cost average back in at 25 basis point yield increments, but it looks like that's not going to happen. (My timing on the sale, by the way, was just lucky, as the longer term trend was still intact - I just didn't want to risk giving up my large gains.) The articles I post are from the handful of analysts who have gotten it right in recent years (very few correctly anticipated the remarkable year in bonds last year). Why would I post articles from the folks who have been nothing but wrong?

  • Reply to

    CHINA SELLING BONDS

    by twornartini Aug 25, 2015 5:32 PM
    merenkov merenkov Aug 26, 2015 5:38 PM Flag

    I agree the Fed has no idea what it’s doing, but the Chinese have shown they don’t either, as they're seeing record capital flight since the yuan devaluation. Ambrose Evans-Pritchard (the must-read financial columnist for the UK’s Telegraph) said it best: “The PBOC is faced with the “Impossible Trinity”, a textbook case in economics where you cannot control capital flows, monetary policy, and the currency, all at the same time. One has to give.”

  • Reply to

    CHINA SELLING BONDS

    by twornartini Aug 25, 2015 5:32 PM
    merenkov merenkov Aug 26, 2015 5:08 PM Flag

    You can find a monthly breakdown at the Treasury’s website, although it’s not easy to find. A google search of ‘Major Foreign Holders of Treasury Securities’ would probably be easier (the current one is updated through June). Japan, with $1.2 trillion in holdings, would currently be number one, followed closely by China (just slightly less, assuming those sales since June). The change in Chinese holdings over the past 12 months isn’t obvious per the chart, since they were using proxies in Belgium to hold around $180 billion (Belgium itself historically holds around $180 billion, so anything above that was likely Chinese).

  • merenkov merenkov Aug 26, 2015 3:37 PM Flag

    Today's stock rally can be pinned on Dudley's comments. He basically told Wall Street he got the message loud and clear, so no rate hike in September. Risk on! Sell your bonds and buy more stocks!

  • merenkov merenkov Aug 26, 2015 1:14 PM Flag

    Haven't you figured out yet that the only "data" the Fed is watching is the level of the S&P 500? Why do you think William Dudley said earlier today that a September rate hike is now less compelling?

  • Reply to

    CHINA SELLING BONDS

    by twornartini Aug 25, 2015 5:32 PM
    merenkov merenkov Aug 25, 2015 10:22 PM Flag

    According to JPM, the Chinese sold about $107 billion of US Treasurys the first half of this year (mostly in the months of April, May and June). According to SocGen (via Zero Hedge), they've supposedly sold another $106 billion in just the past two weeks, which is a rather stunning number. ZH's reaction: "In retrospect, it is absolutely amazing that the 10 and 30 Year Bonds haven't cratered considering the amount of concentrated selling by China." To which I would say, not only have long-term bonds not cratered, the yield on the 30Y is actually a few basis points lower than where it was two weeks ago, which leads me to conclude that the vast majority of the paper being sold by the Chinese is short-term paper and, so far anyway, the long bond doesn't seem to care.

  • merenkov merenkov Aug 25, 2015 3:06 PM Flag

    I don't even care what the Fed does, but they should just make a decision and announce it tomorrow in order to calm down financial markets. They've had seven years to think about it - do they really need three more weeks of data to figure it out?

  • There’s always been a high correlation between the yield on the 10Y Treasury and the 10Y German Bund (over 90% the past 20 years), but the yield spread has been unusually tight since April, averaging about 157 basis points over that time. The past 10 days has been odd, though, as the spread has been narrowing, from around 154 basis points 10 days ago, to just 137 basis points today. The yield on the Bund jumped 14 basis points just today, to 0.73%. I’m not sure what to make of it, if anything, just thought it was interesting. I don’t follow European markets, so I’m not sure what was responsible for the dramatic jump in German yields.

  • merenkov merenkov Aug 25, 2015 2:14 PM Flag

    I'm not sure if "plunge" is the right word, but bonds will trend down as rates trend up. And when they eventually begin the "taper" of QE4, that will be the time to buy back in. Rinse and repeat for QE5, QE6, etc.

  • Reply to

    Alberto Gallo, head of credit research at RBS

    by retired765 Aug 25, 2015 1:08 PM
    merenkov merenkov Aug 25, 2015 2:11 PM Flag

    I wish I had a dollar for every time I've written "you can't solve a debt crisis with more debt" on this message board over the past two years...

  • Reply to

    El-Erian: Stocks need to go much lower

    by retired765 Aug 24, 2015 1:33 PM
    merenkov merenkov Aug 25, 2015 10:41 AM Flag

    I'm generally not a fan of the stock market, and El-Erian may be right, but I couldn't help myself and bought a few blue-chips yesterday. I'll probably end up regretting it...

  • merenkov merenkov Aug 24, 2015 8:25 PM Flag

    Stanley Fischer is supposed to speak at Jackson Hole this Saturday about "U.S. inflation developments". He's recently been quoted as saying inflation is too low, so my guess is that he will use this stage to imply there will no rate hike in September. Even though I think a rate hike would help drive long-term rates lower faster, the absence of a rate hike doesn't really concern me. What concerns me is that he might also signal QE4, and that will be my signal to sell and get out of Dodge...

  • It’s interesting and intriguing when someone like Russell Napier suggests QE4 is more likely than a Fed rate hike. When someone like Ray Dalio, the head of the largest hedge fund in the world (Bridgewater) says it, it’s practically a done deal. From a note to clients earlier today:

    "We Believe That the Next Big Fed Move Will Be to Ease (Via QE) Rather Than to Tighten"

  • Reply to

    Dollar crisis next up?

    by the_invisible_hand2010 Aug 24, 2015 3:20 PM
    merenkov merenkov Aug 24, 2015 4:54 PM Flag

    The bond market already priced this in long ago...

  • Reply to

    Dollar crisis next up?

    by the_invisible_hand2010 Aug 24, 2015 3:20 PM
    merenkov merenkov Aug 24, 2015 4:53 PM Flag

    I'm a commercial real estate guy by profession, and I still like that in select cities. Beyond that, the only asset class I study and trade is the US Treasury market (I buy long-term bonds when I think there is value there, and short term bills when I don't). I don't like any commodities in a deflationary environment, which is what we're in, although the announcement of QE4 could change the market's psychology regarding silver and gold.

  • Reply to

    Dollar crisis next up?

    by the_invisible_hand2010 Aug 24, 2015 3:20 PM
    merenkov merenkov Aug 24, 2015 4:50 PM Flag

    The bond market has been pricing this in for months. The bond market is always way ahead of the stock market. As for the dollar's decline, my guess is that investors are starting to price in no rate hike in September.

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