24. November 2009 by Dan Walkow, CFA, CMT.

RANDALL W. FORSYTH in Barrons writes a good piece on what can go wrong with the reflationary trade that governs the markets at this point in time. As he writes:

GOLD SET ANOTHER RECORD MONDAY while the Dow Jones Industrial Average gained 1% to a 13-month high, supposedly based on the cheery thought that the U.S. dollar would inevitably collapse to zero.

And as if to underscore the public’s interest in the latest gold rush, the five most-read stories on Marketwatch.com were all about gold. (Marketwatch is owned by News Corp., which also is the publisher of Barrons.com.)

Indeed, Albert Edwards, Societe Generale’s global strategist, sees the risks running quite the opposite of the consensus, which has a global recovery on track with a steadily falling dollar. Instead, he looks for a double-dip back into recession leading to a surging greenback, with a collapse of “the China economic bubble” resulting in a double whammy for commodity prices. Worth a read at Barrons here (By subscription)

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24. November 2009 by Dan Walkow, CFA, CMT.

For many investors the drubbing of 2008 wears deep and there is a developing view that “Alternative Investments” such as long-short funds, where downside protection is added to a portfolio to stabilize volatility and take advantage of cyclical downdrafts in the marketplace is gaining popularity.

Timing is everything when it  comes to investing and we are advocates of utilizing Inverse-geared Exchange Traded Funds to “immunize” portfolio volility.

Here is a clip from Bloomberg –

Bloomberg) — JPMorgan Chase & Co. and Pacific Investment Management Co. are inundated with money from individuals attempting to mimic the performance of hedge funds speculating that the stock-market rally is over.

So-called bear-market and long-short mutual funds, designed to protect against falling stock prices, attracted a record $10 billion this year through October, more than double the previous high in 2006, according to Morningstar Inc. Asset managers have opened 19 long-short funds, the most in one year.

The funds’ rising popularity shows how skeptical small investors remain even after the Standard & Poor’s 500 Indexrecouped almost half the 57 percent loss incurred from October 2007 to the March 2009 low. Conventional mutual funds that only buy U.S. stocks posted $4.6 billion of redemptions in the first 10 months of the year, while bond funds added $280 billion.  Read more here.

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24. November 2009 by Dan Walkow, CFA, CMT.

 The US Treasury sold $44 billion of two-year notes at a yield of 0.802 percent, the lowest on record, as demand for the safety of U.S. government securities surges going into year-end.Investors are piling into short-term Treasuries on concern that this year’s rally in risk assets has outpaced growth prospects and as Federal Reserve officials signaled interest rates will remain near zero for an extended period. Rates on some Treasury bills turned negative last week for the first time since last December, when global credit markets froze.

How low can we go? By the time the investment dealers take a markup on T-Bills the interest rate to a retail investor is next to nothing. This is nothing new but furthers emphasizes the point on the previous post that when interest rates turn upward there is going to be pain in bond-land. Read more here.

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