Monthly Archives: July 2012

Model Updates

Here's a sample of Hooper's latest futures trades:

Bond- short 152.04 with a 152.16 stop. Covered today at 151.01. Core orientation still short

10 year- Short 135.01 with a 135.07 stop. Covered at 134.22 and 134.14. Core orientation now flat.

SP - Buy 1348 sold at 1369 today. Core orientation still long.

Euro _ Buy 121.45 with 121.05 stop. Stop moved up to 122.07 today looking for 124.64

All patterns and a host of equity issues and ETFs on the premium pages.

Nominally Real

Following up from yesterday's note, a few clarifications:

The most "accurate" tracking between 5 year yields and GDP is to adjust to CPI. However, we are constructing a guideline "in equilibrium." This provides observable spreads to the prevailing data and a gauge of how far from equilibrium -and thus what policy response-we are.

Let's see what the government serves up this morning and revisit.

Really Nominal

Nominal:(of a price, consideration, etc.) named as a mere matter of form, being trifling in comparison with the actual value;minimal.

The now rarely heard from Alliance Bernstein Economist Joe Carson, who I had the luxury of working with at Dean Witter (whatever happened to Reynolds?), taught me a simple parlor trick to amuse your sotted party guests. At, or near equilibrium the nominal 5 year note yield should approximate the real GDP print. One could always weigh in at the neighborhood pot-luck with cheerful (or morbid) economy calls knowing just the yield on "The Cinco." This knowledge became the basis for my Fed Funds equilibrium model years later. By having a calibration of "equilibrium" one can judge prevailing market observations to the standard and trade accordingly.

The data today show the distortion in term structure to economic growth to be severe. The 1.4% GDP figure is now tracking the 10 year Government Note. This distortion has consequences beyond red faced rants about fiscal cliffs and quantitative easing voodoo. The new alignment- if it holds (more on that in a minute) suggests time, over 1800 days of time, is no longer relevant in economic decision making. By breaking the decade into forward segments and valuing them as zero coupons (that's called a Eurodollar futures strip btw) we can see the entrenching malaise. 5 year 5 year forwards, or tips also support this view. At 99.40+ the "green pack" has an implied yield just behind the 5 year at 59bps.

So, either the old metric shines through and we can look forward to a significant reduction in the GDP report, or the new "Long Malaise Metric" points to a lost half-decade. Now, tell me again why more should not be done?

Shock the Monkey

Wheels keep turning

Something's burning

Don't like it but I guess I'm learning...Shock! Watch the monkey get hurt

Peter Gabriel  "Shock the Monkey"

The patient has been poked prodded and kept alive with all manner of new drugs and procedures. As the pulse has once again dropped the paddles are coming back out and the amperage upped to 11. Everyone in the room already agrees the subject will remain seriously debilitated even IF the vitals stabilize. His cousin EZ in the next bed is fading even quicker.

It'll "look bad" to abandon Twist so something between 200 and 600B (we think 300B) of MBS type IOUs will be thrown on the Fed's balance sheet. There remains little demand from the public for more debt so the Fed focus shifts back to the "flow" aspect of QE over the much hoped for "stock" theory. QE is by definition the policy tool of the 5th level of Hell (gloomy) so the arguments against more of it are silly.

Two rate differentials to keep an eye on going forward: Euribor has been under dollar Libor for a week now and IBM is dealing 10 year notes at 1.87-ish (moderately over Uncle Sam). As the Monkey gets shocked these rates provide interesting short to medium term positives to the triage charts.

Too much at stake, Ground beneath me shake..And the news is breaking...

Shock the monkey to life.

The Next Bailout-It’s not where you think.

The drought has devastated crops in the bread basket but farmers aren't as concerned as you may think. Buying futures, locking in high prices with sales and government sponsored crop insurance schemes keep the heartland from the mood swings of Mother Nature. Unlike car insurance, where premiums are paid out of pocket for predetermined coverage, crop insurance premiums are subsidized and payouts increase with the crop yield reductions. Many farmers are not happy about the recent rains possibly staving off plowing under.

In scale to financial handouts crop insurance is a "minor" gift. Roughly $10 B will be transferred over from this years problems. The taxpayer gets hit twice in this longstanding farm constituent vote buying handout. The food source cannot be politically created.  Smoothing out the lingering Malthusian fears of the Dust Bowl generation does not garner the anger of the anti-bailout "pundocracy" the way mortgage finance does.

One more question just to solidify our view from neither side: When farmer Brown holds up a rare  ear of corn, will the Prez look up to God and say, "You didn't make that?"

Germany DAX Trading Levels 23 Jul

Support & Resistance Levels for multiple time-frames on the Cash Index on the annotated charts below. (Click on graphs to enlarge. May need to click a few times to get to full size) Current Hooper Levels for the DAX.

Technical Trading Charts & Levels for S&P, Euro, 10 Year Note & 30 Year Bond are in  Hooper’s subscription portion of contrariancorner.com

DAX 9:30 GMT