RECOUPLING....T-BOND REVIEW (TLT,TBF, XLU)

I've posted a number of charts in the past months that examined the amazing experience we had in 2012 where typical market relationships melted into nothing and became completely useless.  One old notion that treasuries acted inversely to the equity markets was one of these.  In 2012, we witnessed treasuries increasing in value (yields falling) and equities rising, frankly, this isn't normal.

We've speculated as to why this happened, but without fail we always came back to, "Fed manipulation" as the key distorting factor.  Is it really that foreign investors needed safe sovereign holdings and continued to by US bonds without regard for yield?  Maybe.  Was it that Joe 6 Pack was abandoning his fear and rushing headlong into the equity market.  Possibly, with a portion of his holdings.  Each answer may be correct as the Fed's insatiable desire to buy up mortgages and treasuries has artificially suppressed yields and also forced Grandma and pension managers to elect for riskier assets with "new" money in an attempt to make something.  I think this is why our equity leadership has been focused like a laser in dividend paying stocks in defensive sectors.  The average investor doesn't trust this rally and hasn't, so as he holds his nose he buys utilities, consumer staples, and healthcare and shuns small caps and technology.

Don't think utilities have been a safe-haven?  Check this out.  I haven't sold my XLU yet, but is is on the agenda.

As 2013 dawned, we've seen a recoupling of the old relationship in the first few months, and I for one, am very happy.  Yet, as happy as I have been, an odd sense of dread kicked in as the relationship over the last few weeks started to break down.  Perhaps it was Cyprus, or perhaps the huge rally in the first quarter just needed a breather, but bond yields started floating lower, yet the equity markets just continued to press higher and float out in space to new highs.  I 've highlighted the chart of TBF (which is the etf that shorts treasuries which shows the relationships I've been watching).  In this chart, TBF should move in lock-step with the equity market (SPX) which is the black line behind the TBF chart.

A month or so ago I put this chart up and called for a change in direction for the stock market, but it didn't come.  The weakness in TBF suggests that a healthy correction is in store for stock markets.

Don't get too bearish and over extended here, but certainly the chart suggests a bit lower in equity markets.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

DID YOU CATCH THAT MOVE IN RATES?

I must begin this post with an apology and an explanation.  Unfortunately I have not posted in almost exactly one month.  I have had a family emergency that has required almost all of our attention.  Events like these make me realize how important family is and at the same time how much the blog has connected me to so many great people that I've never met in person through this thing called the web.  Another great aspect of writing the blog is that it does connect me with the rhythm of the market.  When I am not writing, I feel like I am not in sync with what is going on.  Things seem to be calming down with the family situation, so thanks for coming back to read posts.

BIG MOVES
Did you see that huge move in 10 year treasury rates?  All I can say is, "Wow!"  Does a move like this suggest that the treasury is done and is going to be trashed as an asset forever?  No, in fact, if we stick to the plan that I laid out in Confidence Lost - 13 for 2012 this move in treasuries is simply a warning to us that we are getting close to the next major move in markets that I suggest will  happen in May of 2012.

This move in treasuries is simply a wake up call that there is a market force out there that could shatter all the serenity and peace of an equity market that goes up every day.  A 30 or 40 bps move in treasuries is a massive move and I can only imagine the damage it did to currency traders.  Remember back about a year or two ago when we discussed the Fed's balance sheet DV01 or their risk to a 1 bps move?  I believe the DV01 at that time was close to $1.5 Billion.  So last week's move could have cost the Fed around $45 Billion in losses or more based on those old estimates.  That has to leave a mark.

TREMORS
Just like the small tremors that for months have preceded the big 7.4 magnitude earthquake in Mexico yesterday, moves like these in the treasury world are indications that some stuff is brewing.  I anticipate that the equity markets will shrug off this move in yields and push higher for another month, but this should shake us and cause all of us to begin examining positions that have made great gains in the last 6 months.

SYRIA, IRAN, ETC....
Oh yes, what a mess.  This isn't going to get better anytime soon.  Where is our political leadership?  Where is the outrage for Syrian atrocities against its people?  Syria is even more critical as a removal of that regime further isolates Iran which is clearly in the world's interest.  My guess is that our administration will not move to take a stand on Syria since it just makes too much sense.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

9/11 FAITH AND DOUBT AT GROUND ZERO

10 YEARS TO REMEMBER
I saw a portion of a video this week and I wanted to make it available to you.  Below is a Frontline PBS video about the 10 year anniversary of 9/11.  As readers will recall I was an analyst and trader at the time that the towers were attacked.  I did not live in New York at the time so I was not in physical danger (that we knew of), but I am quite moved still at these scenes and as humans we always tend to place ourselves in a situation and view things through the lens of "that could have been me". 

I know many traders and brokers in New York and Chicago that lost close fellow employees and friends and somehow they continued to work and survive.  I am very patriotic and love my country, but I hate how politicians and the media have hijacked this event and am turned off every time I hear how we were attacked, but we won.  No one in the US won, and I refuse to try to make myself feel better because we invaded a country full of poppies and killed thousands of men that think they are attacking us for their own good reasons.

I am very emotional today as I rewatch this video and see the images of men and women throwing themselves from windows above the impact areas in the buildings.  I cannot imagine the fear and utter despair that caused those actions.

I don't know how I feel about this video as it shows so many men and women who are survivors of victims of 9/11.  The perspective in the video is that many have lost faith in God and I would even say have a hate for Him.  I cannot sit in judgement of them nor can I understand their loss and pain.  I can say that I am troubled by so many of their comments and beliefs 10 years later.  I have to remind myself that PBS is probably delighted to show a God-less and God-hating perspective since many very liberal perspectives agree with that.  No matter what their ultimate agenda in showing the film, I want to share it.

FOUNDATIONS SHAKEN
Without doing much more writing I want to state emphatically something that we all need to understand as we watch these people grapple with their faith and core beliefs about God.  I continued to hear in the documentary that many of the people had perfect lives, were blessed, and felt very close to their Lord.  However, now that they have suffered a loss they feel abandoned and are wrestling with how God could allow these terrible things to happen to them.  I believe and know that many of their feelings of loss and God's betrayal stem from a misunderstanding of who we are and why we are here.  The bible and Jewish texts tells us that we are created to worship Him and serve Him, it never promises a perfect life without sadness or loss.  I hear the pain of many in the videos and they are angry and pained but suddenly attribute it all to Him.  I sense that they had a deal with God that they made up, "God you give me everything I want and I'll follow you".  I don't think this is the vision and the covenant that God has in mind for any of us.  In fact, God says, "Give up everything and this will demonstrate your love".

Giving up everything is hard and I can't begin to say that I am at that place of achieving it.  I hate that these people lost so much and it pains me deeply to see that they have lost their loved ones AND their faith and confidence in the one true person of God that can heal and restore them in that place of sorrow.  In that sense, perhaps evil did win that day in that it revealed the deceptions of our hearts in 9/11, that we felt that God was here to serve us and when that wasn't true we rejected Him and sought to blame Him for our wrongly formed and unmet expectations.

  (This embedded video is part 1/7, as they finish you can go to the next one.  This is helpful because you can watch the video as you have time.  I've put the link to the original video at PBS below, if you have time you can watch it all there without seeking for the next chapter.)

Watch the full episode. See more FRONTLINE.

http://video.pbs.org/video/2120639608/

I posted this commentary with the intent of sharing my feelings and thoughts that provoke me to tears.  I do not mean to offend anyone that suffered a loss, I truly cry and share anguish with you although I cannot imagine the sorrow you must endure.  With this loss though, it is imperative to have a true foundation of where we sit in relation to our Lord, without it we will be consistently disappointed and our wrong view will ultimately damage our eternal salvation.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

WADDELL & REED TO BLAME FOR THE MARKET CRASH ON MAY 6?

Please examine the story from Reuters here that examines the broker dealer Waddell & Reed as a possible source for the drop in the markets on May 6.

http://www.reuters.com/article/idUSTRE64D42W20100514

The story goes that sometime in the 20 to 30 minutes of nuttiness, Waddell & Reed entered in a trade to sell 75,000 e-mini contracts into the market.  The sale had a notional value of close to $4 Billion.  Waddell manages several mutual funds and explained that they were employing a hedging strategy for protect their clients.  In the text of the story we see some other pieces of data to note.

On average, 50,000 e-mini contracts usually trade in an hour, but in the specific 20 minute period of the fall and rise in the market almost 850,000 e-mini contracts exchanged hands.

Here's the money quote -

"To get rid of 75,000 contracts, that's a lot of trading even if the market is healthy," the trader said. "But when suddenly the market changes and there's not as many bids there to trade with, 75,000 is going to cause quite a shock to the market.
"That's an enormous position for anybody, whether it's a hedge or whether it's a trade. It's a big position, no doubt about it," the trader said."

So again, this story raises more questions than answers and I'm just going to lay them out in no particular order.

1)  Where is the mysterious "fat-finger" trade of 16,000,000,000 future trades that CNBC kept referring to?
2)  What broker or hedge fund really went bankrupt in that time period.  If something happened according to the rumor, someone really blew up.
3)  Is it any coincidence that the politicians were examining Fed and bank regulation right at the time of the drop?
4)  Who caused the amazing rally that made the markets rise 700 DOW points from the lows?
5)  Does anyone really trust this market?
6)  When are we going to unplug the computers that are doing HFTs?


GOATMUG