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merenkov 181 posts  |  Last Activity: 12 hours ago Member since: Jun 7, 2004
  • The tidal wave of deflation from Japan and China (predicted by Albert Edwards in his letter a month ago) is starting to be felt. The CRB commodity index is now down over 11% year to date. When the Fed commences QE4 sometime next year to fight this deflationary impulse, that will be the time to sell the long bond.

  • Reply to

    Fed has ruined it for us older folks

    by retired765 Nov 25, 2014 2:34 PM
    merenkov merenkov Dec 7, 2014 9:29 PM Flag

    From May of 2004 until February of 2006, the Fed increased the Fed funds rate by 350 basis points. The yield on 5Y treasuries increased by 80 bps during that time, yet the yield on 30Y bonds fell by 84 bps. Why might that be? It’s because the higher short-term rates suppressed inflation expectations, and the long bond is heavily influenced by inflation expectations. This is why long-term rates actually increased during every single iteration of QE (because investors feared QE would stoke inflation), and fell at their completion (look at a chart if you don’t believe me). You might google "Greenspan conundrum" for more detail regarding Alan Greenspan's puzzlement over the drop in long-term yields as he was raising short-term rates.

  • merenkov merenkov Dec 7, 2014 9:10 PM Flag

    What makes you think the economy is doing fine? Real GDP growth has averaged 1.8% annually since the year 2000, about half the rate of the previous 130 years (which was around 3.6-3.7% annually).

    But in answer to your question, the debt-induced panics I’m referring to include the panics of 1873 and 1929 in the U.S, and 1989 in Japan. Each one of these financial crises shared a common root cause, which was extreme over-indebtedness. In the aftermath of all three, 30Y bond yields declined, respectively, from 3.5%, 3.6% and 5.5% to the extremely low levels of 2% or less in all three cases. And those lows occurred between 12 and 16 years after the actual crisis years (the average was 14 years). Even 20 years after each crisis, rates were still very depressed, with the average yield of just 2.5%. High levels of debt suppress GDP growth, which results in lower interest rates. Governments compound the problem by encouraging more debt. You can't solve a debt crisis with more debt!

  • merenkov merenkov Dec 6, 2014 11:22 AM Flag

    In the few historical instances where we’ve seen the combination of a severe financial crisis and extreme over-indebtedness (defined as combined public and private debt exceeding 275% of GDP), long-term interest rates didn't bottom until 14 years after the crisis. If history repeats, this means we won’t see the true bottom in rates until 2022 (and Japan has shown us that it can last even longer than that). The Fed is not going to raise short-term interest rates anytime soon (and if they did, it would likely result in lower long-term rates), so you’re better off trying to play the game according to the reality we’re stuck with.

  • Reply to

    If you look "at the chart" of TLT.....

    by mike37jcwa Dec 4, 2014 5:56 PM
    merenkov merenkov Dec 4, 2014 10:15 PM Flag

    That would imply a yield on 30Y treasuries of around 2.50%, which I think is entirely possible. And sometime in the next couple of years, I think we'll see the yield on the 30Y dip as low as 2.00%. We live in interesting times...

  • merenkov merenkov Dec 4, 2014 10:28 AM Flag

    I'm sure one could come up with several negatives regarding The Container Store, but this is not one of them. The stores are usually packed in December, and the store sells a ton of wrapping paper (at $13 or $14 per roll) and related gift-wrapping material. They also sell plenty of stocking stuffers and boxes for storing Christmas ornaments and decorations. I'm not saying the stock is necessarily a buy here, but it's one of the few stores that I stop by every single year around the holidays.

  • merenkov merenkov Dec 3, 2014 10:35 AM Flag

    The thing about the stock market is that it can rise in defiance of economic reality for a long time. If enough investors believe the voodoo regarding stock market performance in the 3rd year of a presidential term, for example, then it becomes a self-fulfilling prophecy (Jeremy Grantham has some great statistics on this very phenomenon in his latest quarterly report at the GMO website, by the way, and it's free). That's why I prefer the bond market. Generally speaking, it's a barometer of economic activity and inflation, and so performs more rationally (in my mind, anyway). And right now bonds, iron ore, copper and oil are all telling us that the world is in a massive slow-down mode. That doesn't necessarily mean a stock crash is imminent, although I have to think we're edging ever closer to that point.

  • I got goosebumps watching the Star Wars trailer this weekend. I'm a child of the seventies, but had forgotten just how much I loved those movies. JJ Abrams is clearly going to take these films back to the look and feel of the earlier ones, emphasizing adventure and heart instead of political intrigue (like George Lucas's last three). Parents my age are going to being filling up the basket with Hasbro's Star Wars toys next year (and for many years thereafter). It is going to be epic.

  • Spanish 10Y = 1.84%
    Italian 10Y = 1.99%
    US 10Y = 2.19%

    It's a funny world...

  • merenkov merenkov Dec 1, 2014 11:37 AM Flag

    I just noticed that the five-year TIPS implied inflation rate has dropped to 1.52% (1.48% on the 5Y vs. -.04% for the TIPS 5Y). Napier has warned that equity investors should be concerned if the 5Y implied inflation rate drops to 1.5% or below. We're getting awfully close...don't forget: credit anticipates; equity confirms!

  • Reply to

    Marenkov--do you have a stock forcast?

    by ex.goldbug Nov 30, 2014 4:59 AM
    merenkov merenkov Dec 1, 2014 12:03 AM Flag

    So who’s going crazy with the thumbs down here? I’ve never seen that on this board before. Anyway, I’m the wrong person to ask about stock forecasts. The stock market is a mystery to me, and it can travel in directions I find completely irrational for months, if not years. I just got back from holiday travel, and am too tired to post more, but I’ll elaborate later on why I find the bond market far more interesting and predictable as compared to the stock market…

  • merenkov merenkov Nov 26, 2014 4:48 PM Flag

    We're the new Japan, so get ready for another decade of slow growth and low interest rates. In the next couple of years, yields on long term Treasuries will go lower than many investors believe possible. Hedge funds, by the way, have been precisely wrong on this trade all year, and have lost a ton of money trying to short this market.

  • merenkov merenkov Nov 26, 2014 4:06 PM Flag

    That's a plausible theory, except that a lot of currency traders seem to think the Euro is headed for parity with the dollar over the next couple of years (and with currency moves, the trend really is your friend). Add to that the very real repayment risk regarding Spain and Italy down the line (I expect partial bond defaults eventually), and the disparity just doesn't make sense to me, which is why I think the situation is unsustainable over the longer term.

  • Reply to

    Fed has ruined it for us older folks

    by retired765 Nov 25, 2014 2:34 PM
    merenkov merenkov Nov 26, 2014 12:54 PM Flag

    Long term rates are low in spite of the Fed, not because of it. At the conclusion of every iteration of quantitative easing, long term rates fell (by over 100 basis points after both QE1 and QE2), and they've fallen 100 basis points since the "taper" of QE3 actually began. The Fed's bond-buying was about pumping liquidity into the system and reinflating the real estate and stock markets, not lowering interest rates. Long term rates are nothing more than a barometer of economic activity and inflation expectations, and both happen to be falling at the moment.

  • merenkov merenkov Nov 26, 2014 12:44 PM Flag

    I agree with just about everything you say (rare for me on this message board), but you neglected to mention that the 2.26% yield on the US10Y is also significantly higher than the yield of comparable Spanish and Italian bonds, which is ridiculous and unsustainable. I think US yields will drift lower over the next several months, at least until the Fed announces QE4, in which event I will sell my long-term bonds.

  • Reply to

    Treasuries always move up at noon

    by rangetrader123 Nov 21, 2014 12:53 PM
    merenkov merenkov Nov 21, 2014 10:04 PM Flag

    It's kinda hard to rig a $12 trillion market (that also happens to be the most liquid bond market in the world). But it's true that Treasuries seem to be weaker in the morning, for whatever reason.

  • merenkov merenkov Nov 20, 2014 11:42 AM Flag

    I bought WAG just over 3 years ago for $34/share. Share price has doubled since then (plus dividends). If this is "Executive Incompetence", I wish some of my other holdings had such executive incompetence. By the way, what's the point of your vendetta against WAG? Do you think you're somehow going to move the stock price by posting on a yahoo message board? Or does this just serve as some sort of personal catharsis for you? You realize that only 5 or 10 people probably visit this board on a regular basis, right?

  • Reply to

    This is SICKENING...

    by irs_hater Nov 18, 2014 10:12 AM
    merenkov merenkov Nov 18, 2014 10:34 AM Flag

    There's a lot of tax loss harvesting occurring now and likely through the end of the year. If you're long-term bullish, you should be happy since you'll have the opportunity to add more shares at bargain prices for the next few weeks.

  • Reply to

    How to ignore

    by rondhale Nov 17, 2014 12:03 PM
    merenkov merenkov Nov 18, 2014 10:27 AM Flag

    I just put him on ignore too. It really cleaned up this board...

  • Reply to

    How to ignore

    by rondhale Nov 17, 2014 12:03 PM
    merenkov merenkov Nov 18, 2014 10:24 AM Flag

    The only real value of a message board like this is to exchange investment ideas and thoughts with some hopefully knowledgeable investors (there are a few). Guys like donkergen are delusional in thinking that they are somehow moving markets with their nonsense posts. Institutional investors are driving the action on ARCP (and every other REIT), and I guarantee they are not wasting time reading a little internet message board like this one.

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