Omens and Opportunities
Posted on Friday, August 23rd, 2013
It’s all about bond yields. Bonds have approached the 2.9% level on the US Treasury 10 year and that continues to take the wind out of the sails of the real estate and stock markets. New home sales were reported this morning to be down over 13% year over year. Will this lead to a delayed taper? We doubt that. The FOMC may be forced to taper as the risks of QE are outweighing the benefits. Also, those risks may be increasing as the government’s borrowing needs slow due to the sequester.
The Hindenburg Omen may have gotten it right this time as markets have been under pressure since the latest cluster. One Omen is a yield sign. A cluster as large as the latest one is a full stop. According to SentimenTrader’s Jason Goepfert, the recent Hindenburg Omen cluster pattern of 5 sightings in two weeks is the first since 2007 and before that in 2000.
Markets are nervous enough with September and October staring them in the face but the September FOMC meeting only increases the anxiety surrounding markets. We expect the Fed to begin tapering its bond purchases at this meeting as does much of the market. This could make this seasonally weak period a bit more volatile. One thing to keep in mind though is that the Fed is not exiting – just tapering their purchases in a shrinking debt pool. We agree with hedge fund titan David Tepper that the Fed has to taper to avoid sending the stock market parabolic.
Many market participants have 1987 on their minds. That year much like 2013 started sharply to the upside rising over 20%. The Federal Reserve is out with a recent report comparing leveraged ETF’s to portfolio insurance. It was portfolio insurance that was blamed for taking the market down 22.6% on Black Monday in 1987. No problems. Only opportunities.
Keep one eye on bond yields. While the stock market tends to gyrate wildly bonds have a steadier hand. The critical level is now the 3% level on the 10 year. A break of this level could cause anxiety and selling in equities as the Fed may be perceived as losing control of the bond market. Watch the 10 year.
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.