What is weird that they are boosting guidance and still go negative in AH.

Eric Landstrom - 18 December 2008 12:21 PM

Mace - 18 December 2008 12:17 PM

Eric Landstrom - 18 December 2008 11:14 AM

... Moreover, if stimulus plan two is not enough (and it won’t be timely enough anyway) then Bernanke will be forced to begin raising interest rates. Bernanke knows this and that’s why he has raced to zero because in the great depression the FED had to begin raising rates but they began at 5%. Eventually high rates killed any likelihood for growth and the US didn’t recover until WWII production caused our economy to recover. WWII isn’t an option for us unless we follow Rome. As such Bernanke has lowered rates to zero to try and get ahead of the coming interest rate hikes he sees as necessary in the future ...

Pushing rate to zero is clearly a positioning to raise rate later.  However, I don’t understand why there is a need to raise interest rate during Great Depression and if stimulus plan is not enough.  Please elaborate.  Historically, market rallies when interest rate is rising. Actually, is rising market causes interest rate to rise, Fed rate merely follows the market.

Here is some color. When zero isn’t enough.

Alternate link to same story.

Marketwatch seems to be blowing up. Here is the same story at Fidelity.

Everyone and their brother thinks that Treasuries are a bubble (e.g., TLT and TBT). Rates are at an historical low. Will that continue? Not likely. There is still some question about timing, although a weakening USD likely will move the timetable forward. (But not until we regain some traction on exports?) Said differently, just as housing values must return to the mean valuation of 3x income, so Treasuries will return to the mean… and possibly overshoot. Forbes has a good article:

Bond Bubble Brewing

Internet stocks and crude oil have nothing on Treasury paper. When this bubble bursts, it will be nasty.

As 2008 draws to a close, the type of year Wall Street experienced can be neatly summed up by an oft-repeated statement: I’ve never seen this before. From the collapse of a major investment bank (Bear Stearns) to all-time volatility highs (as measured by the CBOE Volatility Index) to the Federal Reserve’s massive liquidity injections, this year will certainly be remembered for decades to come, although not so fondly by many market participants.

In record numbers, panicked investors are fleeing to the safety of Treasury bonds. Just last week, the U.S. government sold $32 billion worth of four-week bills at 0% interest, with demand for the offering outpacing supply 4-to-1. This insatiable appetite for government debt is driving yields for all maturities down to record lows (bond prices and yields move in opposite directions).

Most Treasury-heavy mutual funds are outpacing historical average returns, while exchange-traded funds (ETFs), such as Barclays 20+ Year Treasury Bond Fund (nyse: TLT - news - people ), have price charts that more closely resemble Internet stocks circa 1999. This type of parabolic price action is typical of an overextended market, most recently seen in crude oil.

From a fundamental standpoint, one could argue that the demand for short-term debt is justified and will continue as long as uncertainty regarding global credit markets exists. But looking at the yield curve’s longer end, the 10-year Treasury note is currently paying 2.05% and the 30-year Treasury bond sits at 2.53%, both of which are historic lows. How long will investors accept such paltry returns? And when will the consequences of the Fed’s massive money-printing campaign be realized with rising interest rates and falling bond prices?

First, investors need to feel that they will be compensated for taking risk in higher yielding securities such as equities and corporate bonds. There won’t be a global announcement stating that it is OK to buy stocks again. Instead, it will be a process that will likely evolve over several months.

Watching the TLT is an easy way to track future developments. If TLT begins to fall, perhaps the corner has been turned. Another ETF to watch is Proshares UltraShort Lehman 20+ Year Treasury, which essentially corresponds to twice the inverse of the previously mentioned TLT.

Volume has exploded in this issue during the past month because investors are trying to pick the bond market’s top, and a volume pattern change often precedes a trend change. The flight out of long-term Treasuries is likely to be swift once it begins; after all, it has been 14 long months since the stock market peaked in October 2007. However, we can be sure of one thing: As one bubble bursts, another is already forming.

Eric Landstrom - 18 December 2008 03:52 PM

Are you peeling back some profits on GS? RIMM is trading as though bad news leaked.

Not playing GS just watching it closely, in “vulture mode” as you’d say. Held onto my aapl from this a.m. though. I think tomorrow and next week we’ll see a notherly direction since the $88’s held up again today as support. If not, I’ll bail.

ORCL seems to have reported well, up nicely AH. Perhaps we’ll get some NASDAC pin-action from this and the realization that RIMM is not as good as AAPL. At least RIMM is slightly up right now instead of dragging us through the mud.

PS, bought SRS this a.m. too after studying it a couple of days.

MAX PAIN has slipped to 90, so we can forget about any rescue Friday.

R4         96.74
  midpoint   95.54
R3       94.35
  midpoint   93.15
R2       91.96
  midpoint   91.33
R1       90.69
  midpoint   90.13
PP       89.57
  midpoint   88.94
S1       88.30
  midpoint   87.74
S2       87.18
  midpoint   85.98
S3       84.79
  midpoint   83.59
S4       82.40

Well, hell’s bells, AAPL is up ¢8 in pre-market.

PS: I guess good news from RIMM and ORCL does help the technology sector.

Just heard the radio announce that there will be an announcement of the auto bailout presently.  It looks like GM and Chrysler will get $13.4 billion from TARP with $4 billion likely to follow in February.  We’ll have to wait for the official word, but it looks like the government wants to forestall bankruptcy.

Dow futures are up, and S&P almost there.

Edited: and AAPL now up 1 per cent in pre-market.  Heh…

GM up 15% in pm. F up 10%.

willrob - 19 December 2008 09:07 AM

GM up 15% in pm. F up 10%.

The “Blazing Saddles” defense worked: the autos get their bridge to Obama loans.

I feel like shorting RIMM this morning every time they hit 40. Seems to have some solid resistance there for the last couple if days.

Edit: On a different note - looks like PALM will be history soon.

The same clowns who rated subprime slime CDOs and CMOs as senior investment grade AAA has downgraded everyone’s favorite banks this morning.

Anyway the S&P has spoken and we are free to believe whatever we want.

GM now up 20 per cent.  Probably too late to buy in on that rally: I suspect there will be immediate profit-taking (I know I would sell had I any shares).  On the other hand the share price did reach nearly $5 during ‘motor rally’ week.

Eric, your Blazing Saddles analogy was brilliant.  ‘Drop it, or I swear I’ll blow [politically incorrect third-person self-reference] ALL OVER THIS TOWN!’

AAPL 1.5 per cent up in the first couple of minutes.  Santa, I promise we’ve been very good.

Winterpool - 19 December 2008 09:33 AM

GM now up 20 per cent.  Probably too late to buy in on that rally: I suspect there will be immediate profit-taking (I know I would sell had I any shares).  On the other hand the share price did reach nearly $5 during ‘motor rally’ week.

Eric, your Blazing Saddles analogy was brilliant.  ‘Drop it, or I swear I’ll blow [politically incorrect third-person self-reference] ALL OVER THIS TOWN!’

AAPL 1.5 per cent up in the first couple of minutes.  Santa, I promise we’ve been very good.

As clever as the Blazing Saddles analogy is, I cannot take credit for it. Chartguy used it on Skype a month or two ago to describe what the autos were attempting on Capital Hill.

Winterpool - 19 December 2008 09:33 AM

GM now up 20 per cent.  Probably too late to buy in on that rally: I suspect there will be immediate profit-taking (I know I would sell had I any shares).  On the other hand the share price did reach nearly $5 during ‘motor rally’ week.

GM’s MaxPain for January is $15. A lot of money bet on bailout and major stock boost.

Edit: and OE is early next month, the 16th. Can GM go up $11 in three weeks?

Last time GM share price was $15: 19 June (well, 14.99 high).  GM was last over $10 on 29 September.  AAPL’s high that day was over 119.  I suppose it’s possible we could see AAPL that high in three weeks (very nice, no?), but it’s a much more solid company, and that’s only a 33 per cent increase from the current share price.  I dunno about GM ascending 150 per cent…

Willrob’s data suggests there is considerable upward pressure on the share price.  Perhaps we could get to $5+...?

Edited: why is UYG up, when all the financials I’m looking up are down?  ETF latency?

I have some VIX 45 january put options that I bought when VIX was close to 90, they never increased in value despite the VIX drop, but they now managed for the first time to turn very slightly green, with an enormous jump in value from just yesterday.

What do you guys think? Is this a fluctuation that I have to take advantage of and bail, or else should I let my greed run for a while?

thanks!