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NEW YORK (MarketWatch) -- Treasury prices were weaker in the early going Thursday, sending yields higher, after a rate hike and hawkish rhetoric from the European Central Bank sparked concerns about euro-zone economic strength spilling over to the U.S.
At a 5% REAL rate of return, not nominal rate of return.
I'm currently 44% cash, 35% bonds and 21% Intl Equities. I keep waiting for the shoe to drop. I'll say one thing, I'm amazed that NLY (the REIT I used to own) is still up 7% this year. In fact, Fidelity Real Estate fund is up 8.6%. Every day I see a new article about rates rising, inventory building, etc and yet REITs are still going up!
Sounds like spread positions where they're leveraged 200:1 on their gross, but only 5-20:1 on their net position. That's not to say that there aren't FX traders out there with insanely levered positions, but I can't imagine a bank's credit department extending 200:1 given the volatility in even the most liquid contracts. A trader would get blown up in 10 minutes with that kind of leverage.
That's quite a commute for me! ; )
I'm talking about full fledged tax evasion: underreporting income, paying for personal expenses in cash to avoid a paper trail, inflating business expenses, etc.
That used to be possible due to the transition between progressive and flat taxes under the old code, but it's not possible under the current code.
I left my cell at home today. Will check tonight.
On the subject of taxes, I think the current system is a joke. I live in NYC which means I pay federal, state and city income taxes. My combined marginal tax rate is about 50%. My projected effective combined tax rate for 2006: 22%. BTW, I have no dependants, mortgage interest or property tax deductions. I also don't use any exotic tax shelters (unless you consider 401ks to be exotic), nor do I aggressively itemize deductions/have home business expenses. If I did, my effective rate would be substantially lower. As far as people paying their fair share/the flat tax idea, the largest tax dodgers aren't corporations or individuals, they're small business owners. I can't tell you how many small business owners I know who are flagrant tax evaders. I wish the IRS would focus on that policing that group rather than wasting manpower on investigating Earned Income Credit fraud.
You're not alone. I have no desire to buy US equities at the moment.
That's why I got in the habit of tracking trades in Excel. Come tax day, it made during my Schedule D much easier.
One of my pet projects is to start quantifying reoccuring patterns in spreads offered on that site. Ex: they offer spreads on things like Oscar awards. One reoccurring pattern is that the contracts for films with a lot of "buzz" prior to opening week winning Best Picture trade at inflated levels and then taper off dramatically going into Oscars. For example, over the course of a year, there could be 10 or so Best Picture hopefuls. Opening week, each of their contracts will trade at somewhere between 30-50% chance of them winning Best Picture. Regardless of which one wins, collectively, the group's actual odds of winning is <=100%, but the offered odds are 300-500%. If I short the field over the course of a year, I have guaranteed profit. This even occurs in sporting events (NCAA finals), but the profit potential is much less because people are more conscious of shorting the field.
Speaking of which, I've been moving money into my online gaming account. Why? Because they have spreads on the Dow's 2006 year end level. The speads imply that people believe that there is:
a 50% chance of the Dow closing >11,000
a 40% chance of the Dow closing >11,250
a 35% chance of the Dow closing >11,500
a 25% chance of the Dow closing >11,750
a 18% chance of the Dow closing >12,000
all the way up to:
a 4% chance of the Dow closing >13,000
I have bets across the board, but particularly like the 11,750 because it pays the equivalent of a 33% return in 10 months. I'm not betting large sums, but it's like free money at some of these levels.
You're not kidding about that! It's not just equities either.
You will be a pastry for 10 days? ; )
Thanks for the info, guys. I was actually trying to be sarcastic (implying that Nick was old enough to remember the 1918 flu epedimic). Still, great information.
So, Nick, what was the 1918 flu epidemic like?
True, although I have given a little back (-0.4%) recently due to bond devaluation.
Bird flu was something I considered earlier this year, but it doesn't seem to be as contageous as scientists feared. There was an interesting article in the NYTimes the other day about how those infected with HIV could become the key to the virus mutating into a more contageous form. It boiled down to their lowered immune response preventing early death from "normal" immuno-reaction to bird flu (i.e. lungs filling with fluid). As a result, the host is able to carry the virus longer which allows for longer incubation/mutation. I'm still in the "scientists are just being cautious" camp versus the "OMG, we're all going to die" camp, but it's worth watching.
It takes a surprisingly small change in 5 year assumed earnings growth rates to achieve a 20% drop. In addition, you can consider the effect of a dollar devaluation, local economic event (ex: Thai Bhat devaluation), rally in commodity prices, change in investor sentiment (real estate devaluation), liquidity event (think ARM increases and the effect on household budgets), military action in Iran, etc. I've stated numerous times that I think this will be down year for the Dow. We started the year at 10,700. It would take a 3.3% drop just to get to break even.
You're assuming that the drop will occur over a short time frame. 20% is very doable over several months. All it takes in as string of earnings misses, cautionary guidance and negative economic data. Basically, a sentiment change.
I've been surprised by the recent rally. Not that it's been that impressive a movement, but the time spent 11,000 is impressive in its own right. I don't think we'll get to Dow 11,350 or anywhere close.
With today's sales, I will have completely sold my US equity positions. I've built up a decent non-US equity position and a very large bond position (35 percent). Not too thrilled with the bond position (size or the move down over the last few days), but it's not like I'm dying to put the money to work elsewhere.
True, but it's hard for me to play momentum that way. Since I have to trade at closing prices, I basically have to believe that any break out rally will hold into the close. That's a very risky bet later in the week because I would be betting that 1) the rally will hold into close and 2) traders will want to hold their positions over the weekend.
I will be selling more equity positions today. While I have been surprised by the Dow's return to 11,000, I still think we're headed lower.
Will be selling several positions if the rally holds into the close.
You Would Cry Too If It Happened To You.
Syria to switch to Euros
DAMASCUS, Feb 13 (Reuters) - Syria has switched all of the state's foreign currency transactions to euros from dollars amid a political confrontation with the United States, the head of state-owned Commercial Bank of Syria said on Monday.
"This is a precaution. We are talking about billions of dollars," Duraid Durgham told Reuters.
The bank, which still dominates the Syrian market although private banks have been allowed to set up in the last few years, has also stopped dealing with dollars in the international foreign exchange flows of private clients.
The United States has been at the forefront of international pressure on Syria for its alleged role in the assassination of former Lebanese Prime Minister Rafik al-Hariri a year ago. Damascus denies involvement in the killing.
"It looks like a kind of pre-emptive action aimed at making their foreign assets safer, preventing them from getting frozen in case of any conflict," said a Middle East economist who requested anonymity.
((Reporting by Khaled Yacoub Oweis, Damascus newsroom; editing by Mike Peacock))
Eric, it's a neat chart, but Henry Hub Nat Gas prices have nothing to do with the Euro. If you're goal is to find the floor price for NG as a baseline for investment, then you should graph the prices of implied NG price based on substitution products (Heating Oil, Coal, Residual Fuel Oil) along with the cost of production.
They bet on a variety of financial markets: Dow, S&P, Crude, NG, Gold, Silver. I've never touched the NG/Crude markets because of the obvious conflict of interests. You can even bet on world events: withdrawal from Iraq, where Bin Laden will be found/killed by 12/31/06, etc.
Speaking of coin toss, I decided to dabble on Dow futures on a sports betting site. I'll spare you the details other than to tell you that I bought Dow +25's in the early part of the day and added going into close. I'm able to trade these until close and the value changes dramatically at the strike/goinig into close. If the Dow closed up 25 points or more I get paid, if the closes anywhere below 25 points up I don't get paid. The Dow closed up 24.87 points. Let's just say that this incident soured me on this form of trading.
I agree. I cancelled my sell order for the day. Just not worth closing out positions for <0.5% gains. My Intl stocks should have gotten a nice boost from today's trading though. Still holding those positions as well.
Eric, I don't know for sure. I think Europe imports about 20% of the oil from the Middle East. The US accounts for 15% and Asia/Pacific is 60%. Iran denominates its trade in Euros , but they're the exception to the rule. This goes back a while, but there are a number of good reasons for trading oil in USD. 1) The three major crude contracts (NYMEX WTI, North Sea Brent and UAE Dubai) are priced in USD. Iran is getting closer to developing its own oil exchange. Presumably, crude listed on its exchange would be Euro denominated which would remove a very large impediment to developing the petroeuro market. 2) Pricing a commodity (NYMEX WTI, for example) in two different currencies makes currency arbitrage/risk a factor. This is a long subject. The short version is that making the current system less transparent isn't a good thing (why create a new market to arbitrage?) and this can become especially cumbersome due to location/transportation differentials. The motivations for the petroeuro tend to be more political than economic. There's a reason why Iran is the country pushing for Euro denominated trading.
The real questions are where does the money come from and where does it end up? Unless OPEC and China decide they no longer want to invest in US Treasuries, it really doesn't matter what oil is traded in since it will be converted into dollars at some point. Given that some foreign governments seem to be losing interest in US treasuries, it's worth thinking about whether they would be interested in Euro debt. The EU has some selling points, but economic growth hasn't been one of them. They've managed to hold inflation in check, but at the expense of economic growth. Like I said, I don't know for sure.
If you're going to buy NG producers based on your beliefs on NG prices, you should factor in the cost of production vs. NG futures prices. Basically, do a rough cash flow analysis and determine how sensitive cash flows are to incremental changes in futures prices. The next step would be compare historical relationships (this can be messy) and decide if it's worth the risk. Personally, I think it's inefficient to trade NG stocks if you have an opinion about NG futures prices.
Sold the following positions:
Fid Value +0.44% from 2/7
Blue Chip Growth +0.84% from 2/7
Spartan +0.90% from 2/7
The value trade is disappointing. Guess that fund's positions lagged behind in today's rally.
Yep. I still have a decent stake in the markets from earlier. Going into the close, I was very torn on whether to let everything ride or take some money off the table. Decided to play it safe.
Will be selling Fid Value, Blue Chip Growth and Spartan on close. In total, this will be a shift of 6.9% from stock to cash.
I have some buy orders in. Will be adding to Fid Blue Chip Growth, Diversified Intl, Spartan and Value. In total, I'll be shifting 9.1% from cash to stock.
Yes, and that is a different explanation than what they gave. They make it sound like higher US revenue allocation was the cause of the steep increase and that's simply not possible.
But there's a fundamental problem with that statement: the top marginal rate in the US is 35%. If the US is their highest tax juridiction, why was the effective rate for combined US/Intl operations 41%? It doesn't make sense. There's something else driving that increase in taxes.
I'm really not that familiar with Google's financials and I'm certainly not an expert on their technology. What I'm reacting to is what I view as overly optomistic assumptions by analysts. I have been using/loved Google's search engine since the late 90s. It's by far the best for finding what I want. Their mapping and video features are interesting, but I'm not sure it's worth anything to me/most people.
As an advertisingly platform, the accountant in me thinks analyst projections are too generous. It's difficult to envision internet advertising becoming such a big cash cow without fundamental changes in how it occurs. Allow me to explain. Radio advertising works because people like music or talk radio. In between programming they want to hear, they're a captive audience for commericials. Regardless of how "successful" the ad is in terms of turning airtime into sales, the radio audience is at least made aware of the product. The same with television, billboard, magazine, etc ads.
Internet advertising doesn't have quite the same effect. For example, every day I read InvestorsHub, there's a banner ad at the top of the page. I don't read it. In fact, half the time I forget it's even there. Not only is that ad unsuccessful in turning airtime into sales, it wasn't even successful in making me aware of their product. I simply didn't notice it.
You can try things like pop-up ads or ads with sound effects, but people have pop up blockers and mute the sound on their computers. Now let's talk about search engine results. These are a little more effective in the sense that the customer is actively searching for a product he/she is interested in and whichever vendor is at the top page is the most likely to be viewed. The problem from an advertising perspective is: why is the person searching?
Let's use the example of an MP3 player. Are they interested in buying ANY MP3 player? In that case, any vendor would want that customer because they can sell them on Apple, Sony, etc and book a sale. Are they just interested in one brand of MP3 player, like Apple's iPod? If that's the case, it's likely to be a price comparison search in which the cheapest source wins. Not good. What if they're just "window shopping"? You see where I'm going?
I use searches all the time. They're most effective when I already know what I'm looking for. I seldom learn about new products from anything I see on the internet. I learn about new products from other forms of advertising. As a result, other forms of advertising are more likely to peak my interest in purchasing a product while the internet is where I shop for bargains. Therefore, manufactures would prefer spending money on radio, television, magazine, etc. The only question mark in my mind is what retailers would prefer. My gut says they have the same preferences with a slightly more favorable view of internet since they could pick up incremental sales.
As far as how long can Google exploit its technology advantage, I recall reading each technology change in the last two hundred years has taken place in half the time as the previous one. Basically, if change #2 occured 100 years after #1, then #3 would occur 50 years after #2 and #4 would occur 25 years after #3. The implication is that product life cycles/incubation-to-harvest periods will be cut in half as well. If I had to guess about Google, I would say their advantage would last less than 3 years. I'm not saying that they would nosedive into oblivion three years later. Just that they would have fierce competition from competitors and their margins would slip.