Monday, October 13, 2008

That Fishy Smell Revisited

The market just called. It really, really wants its bathwater back, lol. I think the plan is to bottle it for retail sale at a premium... Essence de Liquidity.

October 13, 2008

Dow soars 936 in a rally for the ages

Stocks had their best day since the 1930s with the Dow Jones industrials gaining 936 points for the first time ever.

October 11, 2008
Something Smells Fishy

Everything is being sold. It seems like belief hysteria.

It's not just the babies and the bathwater at this point. They're selling the bathtubs, bathmats, bathrobes, and the bathhouses too.

October 10, 2008
Capitulation Abounds

The saying goes that if one must panic, panic early. I can't say much, but I can say that those panicking now are most certainly not panicking early. I do think things will get worse, but that doesn't mean they aren't already priced into the markets. Who knows?

That being said, if you must panic BACK into the market AFTER today's 11% rise, you are also probably not panicking early. Good luck on that one. 11% might not sound like much in the grand [ponzi] scheme of things, but it is roughly 60 years worth of "safe" interest on three month treasury bills (based on the recent 0.18% rate). Welcome to the age of turbulence.

Nobody is panicking into TIPS though. They continue to be sold off. You can now get a 2.97% real yield (after inflation) on the 10-Year TIPS. We haven't seen those kinds of real yields since near the peak of the dotcom bubble. Of course, nobody wanted safety then. Why lock in 3% or more after inflation when you can make so much more money elsewhere? Okay, I'm being sarcastic again, but it is the truth too.

Let's talk about a 3% real yield and 1% inflation. That's what the market is predicting based on TIPS spreads and yields for the next 10 years. That's my dream environment. That's not me attempting to ride something out in hopes for better days. That's me jumping up and down for the next 10 years while doing a Toyota dance. Seriously. If only I could be so lucky. As I have said before, any added inflation does not help me, even with the inflation protection TIPS offer. Low taxes (since the overall yield would be low)? High real return? You wouldn't see me complain in the slightest. Toyota dance I tell you.

Of course, most people do not know what TIPS are. I don't just throw that claim out there. First, buying treasuries directly from the government is not something Wall Street is generally going to tell you about. Second, I've asked quite a few people in the last 10 years if they knew the government offered inflation protected treasuries and I-Bonds. The vast majority do not. When is the last time you were at a bank and saw someone actually ask for an I-Bond form? (Not that I'd be buying I-Bonds right now, with their 0% real rate!)

Inflation is truly dead AND the stock market has its biggest rally since the 1930s? It smells fishier than ever to me. You want to know what really smells fishy to me though? NO! It isnt't the bathwater, although I must admit it does smell a bit off, lol. What really smells fishy to me is the following.

We've been telling our clients for months... - As heard on CNBC, nearly constantly

You'd think every client in the world would know exactly what is going on based on that often used line.

This is not investment advice.

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