Your Daily Bit of Wall Street Wit & Wisdom

Paris opera house

The Palais Garnier, Paris h/t Rindoff / Dufour via Getty Images

“If you have to sit in the balcony, it’s time to head for the exits.”

The adage above is apt admonition for investors eagerly awaiting a slew of IPOs (initial public offerings), as well as those clamoring for Chinese junk bond yield.

Sometimes it’s better to enjoy the show from afar.

Best regards,

Steve

Your Daily Bit of Wall Street Wit & Wisdom

yield sign

Not this kind of “yield”

“An inverted yield curve isn’t a technical indicator like a moving average.  Rather, it has real world implications.  If you borrow short to lend long, your profit margin is gone.”
— Eddy Elfenbein

You may be hearing talk of the yield curve in the news.  The yield curve is a line that depicts the interest rate of US Treasury debt, of equal credit quality but different maturity, at a set point in time.  The yield curve shows the difference between short-term and long-term interest rates.

A normal yield curve has an upward slope, with short-term rates lower than long-term yields.  That makes sense, as the interest rate should be higher for the uncertainty of events as you go out in time.

An inverted yield curve is one in which long-term yields are lower than near-term yields for debt of the same quality.  This is an unusual condition and is seen as a harbinger of economic weakness.

On Monday, the yield for a 6-month Treasury Bill was 2.49%.  The yield for a 5-year Treasury Bond was 2.21%.

The Treasury rate is known as the “risk-free” rate, because it is based on “the full faith and credit of the United States of America.”

That concept is what the global financial house of cards is built upon.

Best regards,

Steve

Your Daily Bit of Wall Street Wit & Wisdom

by Steven Sarnoff

On Thursday, stocks slid and investors fled to the perceived safety of US Treasury bonds. Bond prices rose sharply.  Because bond prices move inverse to interest rates, that pushed the 10-year yield down to a paltry 2.54% (see chart below) and inspired this morning’s quote from one of our founding fathers:

“An investment in knowledge pays the best interest.”

— Benjamin Franklin

Chart of US Treasury yields

Chart of falling 10-year US Treasury yields by Steven Sarnoff, h/t stockcharts.com

In the future, we may be astonished that rates were so low.

When you invest in yourself, take the time to learn something, and become the best you can be at it, you receive abundant dividends.

It’s worth it!

Best regards,

Steve

 

What’s Going On (In The Market Now)?

whatsgoingon

by Steven Sarnoff

The extended record-setting move up in the venerable S&P 500 is making any self-respecting seller “wanna holler and throw up both my hands,” and many of the weaker shorts are capitulating.  This has my contrarian senses tingling.

Let’s have a look at what’s going on in three important markets, stocks, interest rates, and the US dollar.

Continue reading

I $SPY Key Resistance, FYI:

ispy

by Steven Sarnoff

Corporate earnings beats, particularly in the Dow industrials, are propelling panic buying. Central bank monetary largesse and money moving out of bonds (pushing 10-year yields up), along with investor hopes for tax cut legislation is also juicing the market.

I try to tune out the noise and focus on what the character of the behavior of market price movement is saying. Note, in my daily candlestick chart below, the appearance of a “hanging man” followed by a strong negative black candle just as the venerable index is nearing the apex of a bearish rising wedge pattern. This is telling us that buyers are approaching exhaustion and sellers are poised to strike back.

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Bonds, T-Bonds — Shaken, Not Stirred

bond

by Steven Sarnoff

No, not that Bond.  I’m talking US Treasury bonds! In today’s session staid T-bonds sold off a little over 1%, as investors fret over future central bank monetary largesse.  Interest rates move inverse to bond prices, so falling bond prices mean higher yields.

Our Options Hotline subscribers were positioned beautifully for this scenario and saw their money multiply in just over two weeks! Continue reading